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« John Embry on that old relic Gold | Main | State of Denial »

Inverse Relativity has deserted us, for now

USD Gold Silver Moving in unison 26 Jan 2011.JPG

We can vaguely detect from the above chart that the USD, Gold and Silver have been moving in unison over last three months. Instead of continuing with their inverse relationship they would appear to have adopted a strategy on hand holding over recently. In November all three were more less rising, followed by December when consolidation was the order of the day and now into January were all three have headed south.

The next chart shows how volatile the USD has been as it continues to oscillate wildly as each new event, such as the Euro strengthening, a money printing scare, a negative comment from someone perceived to be knowledgeable, etc, has a knock on effect. The effect works both ways with the dollar moving up for short stints and then back again. At this point the dollar is looking oversold and as has happened in the past it can stage a mini rally just when it appears to be at deaths door.

USD Chart 26 Jan 2011.JPG

The question is will gold and silver prices rally with it or will they remain in their own mini down trend. They have both had a good run and investors are taking profits and moving to the sidelines. Also add in that it is expiry week for options on the COMEX, so lower metals prices will see a lot of Call Options expire worthless. After that little event we have the upcoming FOMC meeting, where the rock stars of the administration meet for two days to deliberate and prepare their own monumental summary of the economic health of America. We expect the order of the day to be one of no change and would be stunned if rates were to rise at what is considered to be a fragile phase of the recovery. Assuming that you believe that the recovery is underway, we think not and wonder just what happened to all the talk of green shoots etc. This is a very tough time for the United states and will remain so for at least the near future.

When these two events have passed us by we will survey the landscape once again before recommending any trades. However, if you cast your mind back a few months the technical indicators of your favourite stocks were hard up against their own respective ceilings and during discourse with fellow colleagues you would have wished that you had acquired a few more of their shares. Well, that buying opportunity is quickly approaching, in fact it could be here right now. Pull up a chart of the producer that you are interested in and note just where the RSI is sitting, most are around the '30' level which suggests that the stock is oversold and should be bought. After all this is a bull market and at the moment it remains intact, so these opportunities should be grabbed with both hands. You don't need to go 'all in' but you could acquire a few now and maybe a few more a little further down the line. If you believe, as we do, that the year will end with much higher silver and gold prices then a small investment now could look simply sparkling come New Years Eve.


Over in the options trading pit we have just closed 3 more winning trades, so we now have 62 winners out of 64 trades, or a 96.87% success rate.

If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.

sk chart Jan 2011.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

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Reader Comments (4)

I wouldn't pay attention on the last 3 months. The dollar and gold are inversely correlated, this is a law you can't do nothing about. On the monthly and weekly chart there is a clear proof of that. So... as dollar will rally big time next years, gold is going to stall in a bear market for about 5 years. If you are not short yet, this is a good time, we are at the turning point.

January 26, 2011 | Unregistered CommenterDi

China and India are driving demand for gold up.
The "greenback" is headed for the history books again.
Both gold and silver will both increase in value; both intrinsically and against any currency.
It sure as #!*& won,t take five years.

January 26, 2011 | Unregistered CommenterWarren

Ahh, but you've heard it here first folks, THIS IS IT, head for the hills!

January 27, 2011 | Unregistered CommenterSnakeman

I have written on this subject throughout 2010 at
I agree that we are breaking the chains of the long time inverse relationship gold and the dollar have held.

However, I thought I would add, that from a technical perspective, the dollar index could just as easily go below the 30 level on the RSI, and remain there for sometime (this is called an 'embedded' oversold reading) before getting the potential mini rally you speak of.

The trigger, I believe, will be a panic stricken marketplace that will cause a piling into the U.S. dollar, similar to the one we saw in 2008.

However, this time around it is likely that there will not be any sellers of PHYSICAL gold, like there were in 2008 when the price was taken down from $1000 to $700.

If the futures market manages to bring the spot price down in a panicked market, I am of the opinion that the physical demand will be so overwhelming that a parabolic shot to the upside, and probably to new all-time highs, will ensue.

January 30, 2011 | Unregistered CommenterDaniel

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