In a post last Monday, I highlighted an emerging trend in the US dollar and gold.

I am also feeling more bullish on the gold market. It hasn’t broken out of its range yet but the dollar may be peaking.

Gold generally moves inversely to the dollar so if the dollar fails here, gold should go higher.

That trend accelerated last week and continued today:

Euro versus the US Dollar ETF (FXE):

Gold ETF (IAU):

It appears there is some resistance at this level for both the euro and for gold, so a pullback wouldn’t be surprising. This is still just a short term trend. The long term trend for the Euro and gold are still down, but with the Fed printing press working overtime, I suspect that will change.

Full disclosure: As a firm, we and our clients own IAU. We may add to or reduce the position at any time.

As a group commodities have not responded yet to the drop in the dollar. Over time though, there is an inverse correllation between commodity prices and the value of the dollar. Generally, when the dollar falls, commodity prices rise and vice versa. Academic studies have shown that the Australian and Canadian dollars tend to move ahead of moves in commodity prices. While those currencies may be bottoming, I am not ready yet to make that call.

Australian dollar ETF (FXA):

Canadian dollar ETF (FXC):

Goldman Sachs Commodity Index ETF (GSG):

GSG is part of our long term model portfolio and we always have a position, but right now it is less than normal and we haven’t added to it yet. That could change soon.

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