Gold Futures (U.S. $425)

On May 27, 2005 (Gold $419.80), I said that gold was setting up for a short term rally in a very mature longer cycle. The rally quickly peaked above $440. Since then, the gold price has retreated to below $420, and it is now in the process of repeating the recent rally in a tightening short term wedge formation. This time I'll be surprised if it makes it above $440, but that's not my concern right now.

There is a possibility that in the weeks ahead gold will break down out of the short term wedge now being completed. The math model for the long term trading pattern suggests that we may now have passed an important long term price high.

The Chinese abandonment of its U.S. dollar currency peg ushered in the potential for a complete sea change in the valuation of the U.S. dollar, which is a mirror image of the price of gold. It only makes sense that U.S. dollar forecast strength would call for gold price weakness ahead.