The US Dollar Index is not a measure of the value of the US dollar relative to gold. However, there is a relationship between the US Dollar Index and gold price rallies.

The best gold price rallies came during periods where the US dollar index was in a declining trend.
During the 70s, for example, the US dollar index was in decline during the major gold rallies (1971 to 1974, and 1976 to 1980).

The same, but opposite, is also true for the biggest gold declines, in that they occur when the US dollar index is having its best rallies.

Below, is a US Dollar Index chart (from tradingview.com) since 2012:

For many reasons, the price pattern since June 2014, is not likely a bullish flag or pennant-type pattern. Notice the divergence between price and the RSI (between the two blue lines) – this is one reason. Price has marginally made a higher high, however; the RSI has made a significantly lower high instead. This suggests that the US Dollar Index is going lower.

Therefore, it is likely to follow the RSI to the June 2014 breakout level, and even possibly lower. With this kind of decline in the US Dollar Index, gold is likely to have a strong rally.

Previously, I have shown how the long-term analysis of the US Dollar Index suggests that the gold rally is likely to be similar to the gold rally of the late 70s. Below, is an updated version of that chart:

On the chart, I have marked two fractals (1 to 5). Both fractals exist in similar conditions – relative to the relevant Dow/Gold ratio peaks (1966 and 1999). If the current pattern continues to follow the 70s pattern, then the US Dollar Index is likely to decline significantly over the coming months.

This analysis also indirectly shows that gold is likely to perform in a similar manner to how it moved from about $100 to $850 in the late 70s. Furthermore, the analysis suggests that we are now at a point similar to January/February 1977. If this pattern plays out like it did in the late 70s, and gold has a similar rally, then we will see a gold price in excess of $8000.

Based on my other analysis, including the likelihood that Dow is likely to collapse during the coming US Dollar Index decline, it is very likely that the current gold rally will far exceed the one of the late 70s.

For more on this and this kind of fractal analysis, you are welcome to subscribe to my premium service. I have also recently completed a Silver Fractal Analysis Report as well as a Gold Fractal Analysis Report

Warm regards

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

http://hubertmoolman.wordpress.com/

You can email any comments to hubert@hgmandassociates.co.za

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.