WEAKER DOLLAR PUSHES GOLD TO SEVEN-MONTH HIGHS -- THE EURO AND YEN ARE REBOUNDING

GOLD TESTING FEBRUARY HIGH... Gold bullion is up $6.10 near midday and is currently trading over $382. That puts gold at the highest price since February when it reached $390 before reversing downward. If gold prices close at the their current level, it would represent the highest close for the year. Needless to day, gold stocks are the strongest part of the stock market today. The XAU and the HUI Indexes are both at multi-year highs. The fact that gold stocks have already broken out increases the odds that bullion will do the same. A large part of gold's strength is tied to weakness in the U.S. dollar, especially against the Euro and yen.

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DOLLAR RALLY FAILS AT 200-DAY AVERAGE... On August 29, I showed this same chart and argued that the Dollar rally appeared to be failing at its 200-day moving average. Since then, the Dollar Index has dropped to a two-week low. This chart is plotted through Monday evening, but the Dollar is down again today against the Euro and the yen. The August 29 update also suggested that new signs of strength in the Euro and the yen would hurt the dollar and help gold.

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EURO AND YEN ARE UP AGAIN... Chart 4 and 5 show the Euro and yen rallying today. The Euro is moving up to challenge its 50-day moving average. The yen is moving up toward three-month highs. As they move higher, the dollar weakens. And that's good for gold.

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