"Generally speaking, gold and the dollar have an inverse relationship - a rising dollar causes the price of gold to decline and vice versa; however, supply and demand pressures also influence the price of gold, but it is often difficult to see them. For this we use the GolDollar Index.
The GolDollar Index was invented buy Tom McClellan (www.mcoscillator.com), and is calculated by multiplying the price of gold by the U.S. Dollar Index.
Its purpose is to cancel the effects of currency fluctuations on the price of gold. By comparing it with the spot gold index we can determine if there is inherent strength/weakness in the price of gold"
Now, the chart. Firstly, a long-term chart:
source: www.stockcharts.com
The chart shows that the current bull market in gold started in 2001 (yellow area) and its first phase ended in 2013. Then we encountered a medium-term correction (or, some say, a bear market) in gold prices.
However, this correction (or a bear market) was accompanied by a rising relative strength of gold, expressed by the GolDollar index. Let me show it:
source: www.stockcharts.com
The yellow area comprises a period of lower gold prices (the upper panel of the chart - red line) accompanied by an increasing relative strength (lower panel and the up trending red line). Well, it looks like the last correction was the time when gold was accumulated - hence, the last strong rally in gold (and all gold related issues).
On the other hand, Technical Analysis says that the gold is currently below its strong resistance, expressed by the blue line at the bottom panel of the chart.
Much like $1200 has acted as an important SUPPORT / RESISTANCE LEVEL for gold over the last few years, it would seem to be a strong confirmation of a bull market for gold if/when the strong resistance on the Gold Dollar Index finally breaks.
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