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April 22, 2010

Grecian Formula

The good news for gold bugs today is that precious metals mostly resisted a sharp rise in the U.S. Dollar Index. I've been harping for at least a couple years that the DX does not have to fall for gold to rise. All major currencies are being trashed, so just because one is falling or rising against another does not say anything about the viability of the one showing relative strength. Of course, if the dollar were the weaker currency, gold and silver would be rising much faster in dollar terms, and that's where the bad news comes in.

dollar consolidation breakout

This breakout, in my opinion, swings the odds toward seeing near-term strength in the buck, and while such action is not likely to knock precious metals very hard, if at all, we probably won't see our runaway moves develop presently. Unless this breakout fails quickly, the best case for gold bugs would be to see gold labor its way back to its $1225 high over several weeks. After a small correction from that level, the parabolic phase could commence if the dollar finally rolls over. The most plausible hypothesis I've read so far concerning the timing of that roll comes from Gary, who believes the Greek bailout is being stalled until after the German elections.

Stocks are anybody's guess, but given the persistence of this rally, the end is likely to unfold as I've anticipated since the beginning of the rally, which is to say with a vertical blow-off stage. Therefore, dollar action aside, I am just sitting tight with my precious metals and mining positions. The sails are set. We just need to maintain enough patience to catch favorable winds.

 

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