The dollar has just rallied to a new 11 month high and will soon put in a new 52 week high; in contrast gold has refused to trade below its Feb 5 low of 1045. In Feb 2010 the dollar was trading much lower and so by logic gold should have easily dipped below its Feb 2010 lows. Instead we find that gold is just a hop and skip away from testing its old highs.
Gold has now put in new highs in all major currencies. The strongest out of the bunch has been Palladium, which went on to put in a series of new highs in the face of a rising dollar. These extreme divergences indicate that the precious metals market is sensing another crisis in the not too distant future; our guess would be another currency crisis. Watch the 83 level on the dollar index; a close above this level on a monthly basis will indicate that the dollar is ready to test the 90 ranges and the euro will most likely trade down to the 120 ranges.
Gold has rallied to new highs in the euro, and it continues to defy the dollar; instead of pulling back it continues to put in higher lows, a very long term bullish pattern. It has also just closed above $1175 on a weekly basis and has thus set the base for a test of its old highs.
The entire precious metals sector appears to be sensing some sort of future disaster for it simply refuses to correct strongly even in the face of a very strong dollar. If you have no position in the precious metals sector, use pull-backs to open up a position. If you already have positions, then use strong pull-backs to add to them. A major currency crisis is going to strike, it’s just a matter of time and precious metals thrive in such conditions.
Disclosure: We have positions in Gold, Silver and Palladium bullion.