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It use to be the case that whenever we observed a dollar drop, gold and silver would spike. In fact, with every down-tick in the dollar, the S&P 500 would also get a boost.

Well that inter-market relationship that many traders have used as a front running tool exists no more. In fact, many major inter-market relations are breaking down as you read this article.

The past several years this inter-market relationship worked as follows:

  • When the dollar went down, U.S. markets, European markets and gold were up
  • When the dollar strengthened, U.S. markets, European markets and gold were down

Over the long term I have shown in a previous article that there is actually no inter-market relationship between gold and the dollar. Over the short term, however, there is a relationship until it breaks down. The reason why we don't observe an inverse relationship between gold and the dollar long term is because it changes polarity every several years. Well, I think things are changing once again.

(Click to enlarge)

(Click to enlarge)

If you look at the above chart, we can see that the inverse relationship between gold and the dollar more or less existed from the beginning of the year. As the dollar was going up -- until about April -- gold was falling, according to the long standing inverse relationship.

Then something strange happened. The dollar fell just a bit, but gold didn't go up, but got crushed, going from about $1600 to $1350 in a straight line without a stop.

Then the strangest of all things has happened again recently, when the U.S. Dollar index corrected from about 84.5 to 81, but gold didn't move to the upside one bit.

In other words, the inverse relationship between the dollar, gold, silver and major market indices is falling apart. This might just be an exception to the long standing rule, but I think that these moves are too much of a coincidence.

Falling apart however does not mean that the relationship is 100% in reverse polarization. It might just mean that assets don't get a boost from a lower dollar, and that a stronger dollar will mean a correction in gold anyway.

What does all this mean?

What I think it means is this, when the dollar makes its next upward move (and It will), that's when gold, silver and the entire commodities space will make their next move downward.

Obviously we need many more months of data before we can confirm this observation, but for now at least, based on the recent price action, I see a reversal of the inverse relation of gold, silver and the commodities space to the dollar for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.