I watched with interest last night as the US dollar fell out of bed and below the prior low of 79.5. It finished the session on 79.1, crashing through the support line that ran from last November.
After being range bound for a few months, lots of major world markets look like they are finally starting to show their hand.
1. The dollar is breaking down.
2. The US stock market, which I said looked weak in the last post, has failed to follow through on the second, Fed engineered, magical late recovery day in a week. We could be getting close to a big down day.
3. The gold market is consolidating at a level above $1300, with slow stochastics looking good.
4. Importantly, the VIX indicator, the measure of market fear, has had a spike in call options placed in the last week. There are now 3:1 calls to puts. In the past this has preceded large spikes in the VIX, usually due to a move down in stocks.
So…if the dollar is falling and stocks are falling, then that is bullish for gold. Gold usually rises when the dollar falls, and rises when the stock market falls.