At first glance gold pushing higher while the dollar is rising may seem strange, but the explanation lies in the fact that it is not so much a matter of the dollar rising as it is of the Euro falling, because the Euro has a very high weighting in the dollar index, the dollar appears strong.

Gold has had a good rally so far this month, following a potentially bearish breakdown from the large symmetrical triangle that formed from last December and which was followed by a (admittedly marginal) break of its long-term uptrend. Due to the possible bearish ramifications of these trendline breaks we have refrained from an all-out "buy alert" on gold stocks. Now, however, gold has risen to a critical level where it is running into resistance from the top of its wedge down channel, and a little above that, the underside of the triangle (see 1-year chart). The triangle is rapidly narrowing down to a point and, in any event, we will want to see the gold price break above the nose of the triangle, currently at $438, before turning outright bullish. Turning outright bullish once that happens makes a lot of sense, as close stops can then be placed beneath the nose of the triangle, affording a very favourable risk/reward ratio.

As gold has performed well this month even though the dollar has risen, it follows that it must have performed even better against the Euro. Looking at a 5-year chart for gold against the Euro, we can see that this has indeed been the case, with gold spiking upwards towards what is clearly important resistance approaching 3.60, that has beaten gold back 4 times since early 2002. It is running into this resistance synchronously with the dollar resistance, thus we are now are a very important juncture. If gold breaks out against the Euro it will be a very bullish development.

The latest COTs charts show the commercials' short positions in gold starting to climb, but they are by no means at critical levels yet.

The dollar succeeded in pushing still higher on Friday, and it is still expected to back off short-term as it is overbought and in a zone of heavy resistance, shown on the 2-year chart. However, there can be no denying that the dollar has now broken out of its long-term downtrend, shown on the 4-year chart. This is why it makes sense to tread carefully until gold succeeds in breaking above the apex of the triangle described above.

The critical juncture at which gold now finds itself is mirrored by silver, where we are seeing an ominous increase in the commercial short position, which gives additional grounds for caution with gold itself at this juncture.