Is the Gold – Dollar Relationship Breaking Down?
In our Aug. 20 Seeking Alpha article–Pessimistic Sentiment Gives a Buy Signal for Gold–we suggested that gold sentiment had reached overly pessimistic levels and a rally was likely. Since then bullion has continued to surprise and strengthen, and today Comex gold for September delivery gained $19.20 a troy ounce, or 1.97 percent, to end at $995.80, its highest close since Feb. 20. Gold has jumped by 4.6 percent over the last three trading sessions and is now less than 1 percent below its exchange record close of $1003.20 on March 18, 2008. Sentiment has yet to reach the neutral band (see bottom chart below), indicating to us that there is enough skepticism for further upside. The more interesting question is are we seeing a break down in the gold-U.S. dollar relationship (see top chart below)? Since the market low in March, both gold and the U.S. dollar have been range bound, which on balance has confused and frustrated gold bulls. Ned Davis Research pointed out this week that this fad
