Gold Strength In Face Of Greenback Rise Makes Analyst Bullish

That strength in the face of the greenback headwind has convinced Sol Palha that gold is in a new bull phase. He is, however, expecting a further rise in the dollar. The nub of his case is presented in the Conclusion to his Seeking Alpha article:

The dollar has exhibited unusual strength; it simply refuses to correct, refusing to trade below 80 for any decent period of time. A close above 81 on a monthly basis will be the strongest signal that it could potentially trade to and past 90 before topping out. In the short term time frames, the Dollar is overbought and normally one would expect a pullback from current prices to roughly the 78 ranges.

Gold, on the other hand is also picking up strength; this is clearly illustrated by its refusal to match the dollar by putting in a new 9 month low, and instead it has gone on to put in a higher low.

On the longer time frames though, Gold has still flashed several very strong negative divergence signals that need to be neutralized; two of these negative divergences were mentioned above. [They were higher lows for the greenback and non-confirmation of new gold highs by gold-stock indices.] Thus, the potential for Gold to correct/consolidate for several more months remains high, until of course, the above signals are neutralized or a new buy signal is issued on the weekly timelines.

Right now, Gold is holding up remarkably well In the face of a stronger dollar. If this pattern continues, then the next break out is going to be very explosive in nature; the dollar is not expected to mount a long-term rally.

Just beforehand, he lists seven fundamental reasons why gold should go up. One of them has to do with a preference of the U.S. government for a lower dollar. The seventh deserves some thought: "Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment...."

Provided that real rates are low, preferably negative.