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Gold In A Dilemma: New Bull Market Underway Or Not?

Will gold break out and turn its 6-year bear market into a new bull market? That is the million dollar question top of mind of many investors. Given gold’s chart setup there is fair chance that gold could break out but there are some opposing forces from an intermarket dynamics perspective.

First, gold’s chart is looking stronger with the day. Although gold has gone nowhere since last summer (more than 12 months now). Even if some gold bugs have been very enthusiastic in reality gold has been trendless since then.

That would change once gold breaks out. From a price analysis perspective gold turns its bear market into a new bull market once it moves above $1330. That is just 3 percent higher from current levels. The final confirmation would be the $1400 level.

A ‘breakout’ is a process. It mostly is a price range where a market has to go through before the breakout is confirmed. In the case of gold it is the $1330 to $1400 area.

How likely is it that gold will perform this long awaited breakout? Well, the hard thing in gold’s market is that it is subject to strongly opposing forces. From an intermarket trend analysis perspective it will most likely get push back from the dollar while a potential stock market correction would be gold friendly. That’s gold’s current dilemma.

On the one hand, the dollar is likely to bounce strongly from current levels. In general a rising dollar is bad for gold and vice versa. It will be key to understand how both markets will react as they are trading near a major resistance (gold) and support (dollar) area. Interestingly, this dollar / gold trend is in the making for a couple of months now, and we spotted it already in May: Will The Price Of Gold Benefit From The Dollar Breakdown. This makes the point why it is crucial to continuously monitor markets and specific trends as they can take many months before materializing.

One the other hand, there is a very high probability of a strong stock market correction, as said in Is The S&P 500 Correcting Towards 2125 Points. In general, when stocks correct there is a fair chance that money flows to gold and treasuries, both safe havens.

That’s gold’s current dilemma.

It will be very interesting to see how gold will react in the coming weeks. The key question is whether gold, silver or precious metals miners will be the most profitable asset to invest in once gold breaks out. That is what InvestingHaven will be closely monitoring.

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  • Monitor

    One sure -fire author will never go wrong .

  • John Ronning

    gold’s price is more closely related to the yen vs dollar ratio than the dollar index – just look at the yen vs dollar ratio for the last year and you can see it’s a mirror image of gold vs dollar.

    • Gene

      Yep, I believe that’s the main switch rigging system.

    • Kenny Cheung

      Couldn’t agree more, wonder why the author can’t see that relationship and keeps on using dollar to view gold.

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