Dollar Rallies and Gold Falls

May 2, 2008: 1:39 PM CST

In a twisting reversal of fate, the US Dollar Index is coming off new lows after building a potential base while gold prices are coming off new highs after a climax top and potential top formation. The intermarket relationships are in full force. Let’s look!

Notice the ‘mirror image’ occurring in this post. That’s because the US Dollar and Gold prices trade with a very strong negative correlation (in the neighborhood of -.80). A rally in the Dollar Index will often cause profit taking in Gold.

Gold is traditionally a hedge for inflationary concerns, and a falling dollar is generally inflationary (and good for commodities). This has been the relationship for quite some time, but the Dollar is trying to stage a comeback at best or at least a counter-swing rally, and gold prices are acting as expected.

Also, the $CRB Index is coming off its highs and Crude Oil prices have fallen from $120 down to $110 as of May 1st.

Continue to watch these markets for signs of reversal in trend, and what falling commodity prices and a strengthening US Dollar will mean for the US Stock Market (hint – it’s bullish).  Check out the Market Club signals and analysis for gold, oil, and other futures markets to help you with your own analysis.

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