Dollar’s Breakdown, Stocks’ Breakout and Implications for Gold

After 12 years of gains, gold has fallen nearly 20% this year. The price of gold has been pressured for much of this year by the view that the Fed would end its stimulus program soon because of strength in the U.S. economy. However, some recent (weaker than expected) economic data, along with the 16-day U.S. government shutdown, have suggested that the central bank may keep its bond purchase in place for longer and increased gold’s safe-haven appeal.

What impact did these circumstances have on the yellow metal?

In less than two weeks, gold has rallied 8% (nearly $100 an ounce) and it seems that the shiny metal will end higher for a second straight week.

On Thursday, the price of gold climbed to a one-month high after preliminary data showed that U.S. manufacturing activity fell to a 12-month low of 51.1 in October from a reading of 52.8 in September. Additionally analysts had expected U.S. jobless claims to fall by 22,000 to 340,000 last week. Meanwhile, a separate report from the U.S. Department of Labor showed that the number of individuals filing for initial jobless benefits declined by 12,000 last week to a seasonally adjusted 350,000. The above (weaker than expected) numbers raised expectations for continued easy-money policies from the Federal Reserve.

Taking into account the fact that yesterday gold reached its highest level since Sept. 20., the big question is: will it keep rallying?

Today, we’ll examine the US Dollar Index from many perspectives and take a look at the long-term S&P 500 chart to see if there’s anything on the horizon that could drive gold prices higher or lower in the near future. We’ll start with the long-term USD Index chart (charts courtesy by http://stockcharts.com)

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