I use Seasonal Charts to get a “perspective” of where prices are in terms of historical momentum and whether or not current price patterns are following historical ones.

I believe gold’s current price action is in synch with both its 35 and 15-year historical pattern.

Daily Gold Chart

Last week I started this Metal Report by saying: “Gold is consolidating. Because of gold’s seasonal tendency to break in the second half of October, the odds favor that prices will try to probe lower over the next 10 days or so. How low prices go is the question. Because I remain bearish the Dollar and bullish gold, I have decided to use current market weakness to put on some Gold Call Spreads.”

Not a bad call given the break in gold prices. Yes, the Dollar is rallying, but longer term I don’t think the rally to be more than short covering. It’s possible that the rally has created a trading bottom, but so far I don’t see evidence of it on the longer term charts. The shorter term Daily Chart has seen the trend turn up. Not the Weekly or Monthly charts…yet in my opinion.  

Gold is experiencing a controlled price break. There hasn’t been panic liquidation. At the time of this writing, prices are down approximately $38 per ounce from the December Contracts all time high of $1072. This represents about a 3.5% decline. Small in overall terms.

Prices appear headed down to the $1025 price level, which is currently where the Bollinger Band Bottom support comes in. Tonight this level will move up once prices open the for Thursday evening trade. This price level is also the top of a previous consolidation zone, which I’ve labeled using “aqua lines” on the chart below to make seeing what I mean easier for you.

Those that have been following me know that I believe that gold is moving in price increments of $25.  These increments can expand if the market doesn’t pause on breaks or rallies, but I am comfortable with this approximation.

Whether or not gold stays tied to Dollar movements as keenly as it recently has remains to be seen. This relationship can change. In fact over a short time it would not be a surprise to grab onto a number of themes other than the value of the Dollar. We’ve already seen the influence of stock market swings on gold. Coming is inflation, how other commodity prices are doing and a stumbling real estate market. At its core, gold is considered a “safe haven” investment and as such, its value moves with the “mood” of the day.

Last week I pointed out that I was bothered by seeing the Stochastic Study stay embedded without seeing a price advance. In looking back, this observation was a good one and provided a warning sign. As Stochastics lost their “embedded” status, a break in prices followed. With the $38 break in prices that has taken place, the Stochastic Study has become oversold, which I interpret to mean that prices are or have entered a value area.

Below is a Line Chart of the Dollar Index versus Gold made using LGP-IraCharts. Gold’s scale is on the right side of the chart and the Dollar Index’s on the left side.

The relationship between Gold and Silver seems pretty evident. Look at where prices intersected on the above chart. The intersection was in early September. Since that time the Dollar and Gold have been in what I term a stronger than normal, inverse relationship.

When will this end?  I have no idea. What’s important is recognizing that this is gong on and being on the lookout for when it eventually ends. Until it ends, the relationship remains in play and bears paying attention to it. 

I will update what I want you to do in my Twice Daily Updates. As of right now I am content in recommending you stay with this position.