Gold Is Up and the Dollar Is Down -- Chart

I thought we'd revisit a chart I keep posting of the relationship of between the US dollar and gold -- the "seesaw of pain" as I call it. 

(updated chart)

You can see that this morning, gold gapped higher while the US dollar continues to bleed lower. The day's not over yet -- anything can happen -- but this is a potential set-up for a rally in gold and a pullback in the US dollar. Since the US dollar's larger trend is down, maybe we'll see a resumption of that trend. But be sure to wait and see how the day ends.

Naturally, seeing how the dollar ends the week would be even better.

What seemed to spark this was the prepared testimony of Federal Reserve Chair nominee Janet Yellen, which was released late Wednesday afternoon. Yellen said she would continue current Fed Chairman Ben Bernanke’s monetary policies and said the U.S. economy still needs monetary stimulus because it is performing below its potential. The market place read Yellen’s remarks as dovish monetary policy.

This gave gold a lift yesterday afternoon, but REALLY put a fire under the broad stock market. The action in gold is more short-covering. We need to see follow-through. Gold and silver remain totally at the mercy of tapering expectations.

What could help the dollar (and hurt gold) is if the European Central Bank cranks up its easy money policies. That would probably push the euro lower and boost the dollar. 

However, for now, I'll take the good news where I can find it. This is helpful for the three gold mining positions we entered in Gold & Resource Trader this week.

More Gold News

In other gold news, Bloomberg reports -- quoting The World Gold Council -- that in the third quarter, global gold demand slipped to 868.5 metric tonnes, from 1,101.4 tonnes a year earlier. Investors pulled 118.7 tons out of ETFs and similar products, while buying from central banks was 17% lower than a year ago. So, central banks are still buying, but at a lower rate. 

Also, China’s demand for jewelry, bars and coins rose 30% to 996.3 metric tonnes, while usage in India gained 24% to 977.6 tonnes. So it's a continuation of the big shift from West to East.

Finally, as of November 13, holdings in gold-bullion-backed exchange-traded products stood at 1,873.3 tonnes. That is down 29% from the beginning of the year, but selling seems to have subsided, and holdings in the gold ETPs seems to be hammering out a bottom. We'll see.