Best Financial Markets Analysis Article The chicken or the egg? Which is which: gold or the dollar? My work is telling me to watch the $$$, and the rest will take care of itself. From a technical perspective, let's notice that the daily dollar index (DXY) has been consolidating at the high end of its Nov-Dec upleg, which has taken the form of a bullish continuation pattern. If my perception of the pattern proves accurate, then the DXY is on the verge of upside acceleration that will resume its Nov-Dec rally-- on the way to 80.00 next.

Meanwhile, as the DXY has rested and digested in a narrow range, spot gold prices have recovered about 40% of the prior decline, from $1227.20 to $1074.00, back up to $1140. If the DXY spikes to the upside into a new upleg, then we should expect spot Gold prices -- and its corresponding SPDR Gold Shares ETF (NYSE: GLD) -- to reverse from the $1150 area (the 50% recovery resistance area of the Dec-Jan decline) and roll over into a nasty nosedive.

That should press prices quickly towards a retest of $1074, which if violated should open a floodgate of long liquidation into the $1000 target zone thereafter. Right now, my optimal scenario calls for another potent upleg in the dollar. Let's see if the rest takes care of itself. MJP 1/07/10 2:50 PM ET ($1,133.40... 77.93)

By Mike Paulenoff

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com) , a real-time diary of Mike Paulenoff's trading ideas and technical chart analysis of

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