Gold Versus the Dollar - Reversal of Fortunes

Using the SPDR Gold Trust ETF (NYSE:GLD) as a proxy, we can see gold prices are up today. But, we can also see they were up on December 16th as well. It was hardly the beginning of a rebound though. In fact, GLD fell sharply to new multi-week lows the next day. Today's strength is likely the same kind of bottom-fishing buying. Like the last time, however, the bullish effort won't be enough to stop the bearish freight train that's now in motion.

We still contend gold futures are en route to $1027, which translates into a target price of $99-$100 for GLD. Those target levels were determined by using Fibonacci lines, though it's worth noting both are in line with October's key low or high points.

As for the greenback, undoubtedly today's mild bearishness will convince a handful of doom-seekers that the last month's worth of rally was just a bullish blip on the path to complete financial devastation.

To some degree their expectation for downside is probably right - the dollar has worked its way into an overbought situation, and needs to cool off. On the other hand, much of that pessimism needs to be reeled in. Even a strong pullback won't necessarily put the U.S. Dollar Index back into its prior downtrend.

We're only looking for the dollar to bleed off its overbought pressure. After that, it's onward and upward again.

Before it's all said and done, the Dollar Index should reach its first Fib line at 79.76 before we even need tothink about taking a stance against it again. Nothing is ever set in stone though, so be sure to stay tuned for updates on these outlooks.

And just so you know (though you probably do anyway), it's the dollar's movement that's mostly fueling gold's movement. Both should be hitting major milestones at roughly the same time, which is why we're using Fibonacci lines as our targets on both charts.