Gold Set to Ram $1,000 Barrier Again

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"Will this be the rally that starts gold on its way into the stratosphere?"

The dollar's bounce last week from a Hidden Pivot support lasted all of four days, suggesting that more weakness is on its way. If so, we should look for gold quotes to blow past $1,000 by no later than mid-week. Our immediate target for the August Comex contract is $1066.40, subject to a "hidden" resistance just above at $985.80. A two-day close above that last number, or a trade more than $4 above it intraday, would be quite bullish for the near term.

Will this be the rally that starts gold on its way into the stratosphere? We have our doubts, since gold's short-term charts suggest quiet strength, but not yet explosive power. That could change overnight, however, if the dollar is about to go "kamikaze."

The fact that the Dollar Index has failed to gain traction at some key technical levels in recent weeks is ominous. The trade-weighted Dollar Index settled on Friday at 79.34 and looks primed to test a key support at 77.69 recorded last December. If the support fails, we might see some panic spread into other markets, particularly T-Bonds.

There are already some disquieting signs in the bond pits, notwithstanding a sharp rally in the price of Treasury debt at the end of last week. A price surge on Thursday and Friday p artially recouped earlier, heavy losses sustained in the days immediately before and after Memorial Day. But the bigger picture is growing downright scary, since T-Bond yields have crept back up to where they were before the spectacular futures rally in mid-March, when it was announced that the Federal Reserve was about to embark on a program of "qualitative easing."

That's just a euphemism for direct monetization of Treasury debt, but the plan appears to be backfiring, and badly.

The (hyper)inflationists are almost certain to be right at some point. But we are not counting on fiscal stimulus, TARPs and all the rest to bail out an estimated 40-50 million homeowners who are underwater on their mortgages. We'll join the inflationists if and when the government starts bailing out individual homeowners rather than banks.

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