Even more concerning for the bullish case is the fact that the next daily cycle should roll over into a much larger degree intermediate decline. That would almost certainly power another leg higher in the dollar and depending on how severe the stress has become in Europe we could see the October lows tested, and even broken if this is a new cyclical bear market.

The kind of selling pressure that is generated at daily cycle lows and especially during an intermediate degree decline affects every asset class to some extent. Gold will be no exception. This is why I have been warning people to wait for the daily cycle low to form in stocks before jumping heavily into precious metal positions.

Gold may or may not have put in a final D-Wave bottom last week. But there is a good chance that bottom is going to get tested in the next couple of weeks. And then of course we will have to contend with the selling pressure as stocks move down into their intermediate degree decline in February and March. That could conceivably drive gold back down below $1523, although I think any dip below that level will only be marginal and quickly recovered.

Right now patience is the name of the game until the stock market has formed a daily cycle low which is due sometime in the middle of January. Cash or a modest position in the dollar index is the safest bet for the next couple of weeks.

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.

-- Posted Friday, 6 January 2012 | Digg This Article