GOLD MAY BE BREAKING OUT

GOLD RISES OVER $370... In morning trading, the price of bullion is up $5.00. More importantly, gold is now trading over $370 for the first time in nearly three months. We take that as a bullish sign that gold may be starting another upleg. Gold still needs to clear the highs formed during May. However, it has already broken a resistance line shown in Chart 2. The weekly chart shows that gold has been consolidating in a symmetrical triangle since the first quarter. Today's gold move over $370 has broken the declining resistance line drawn over the highs of the past year. Such a breakout in a symmetrical triangle is usually a sign that an uptrend is resuming. Chart 3 puts that triangle in better perspective. The monthly chart shows that gold achieved a major bullish breakout over $325 last last year. The spring pullback found new support right at the breakout point at $325. Since then, gold has been consolidating within that new bull trend. It now appears that gold may be starting a new upleg. Two other intermarket forces are working in gold's favor. Both gold indexes (The XAU and the HUI) recently broke out to multi-year highs. Upside breakouts in gold shares traditionally lead to upside breakouts in bullion. In addition, the rally in the U.S. dollar since May has caused the gold rally to stall. The Dollar Index has reached resistance at its 200-day moving average and is looking overbought. It's trading down today. Any hint of dollar weakness should translate into higher gold prices.

Chart 1

Chart 2

Chart 3