Important breakout in the Dow-to-gold ratio and its implications for gold

Implications for gold? Bullish in the long run, nonexistent in the short run.

As we can see, the great fundamental outlook for precious metals is intact. Let's move on to the chart section of today’s essay to see how gold’s current technical situation looks and therefore how gold can trade in the following weeks. Before we proceed to the yellow metal itself, let us begin with the Euro Index long-term chart (charts courtesy by

The index has declined for the past two weeks and it seems now that we should consider the possibility that the head-and-shoulders pattern will be completed here. Such a completion would take the Euro Index much lower.

The size of the projected decline after the breakdown and completion of the pattern is roughly the same size as the height of the head in the pattern. If this decline is attached to where the breakdown occurred, the projected downside target level will be about equal to the 2012 low (in the 121 – 122 area). Such a move would likely contribute to a U.S. Dollar Index rally. All of this could also be bearish for gold in the medium term if it all does indeed materialize.

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