From Ben Morris, Editor, DailyWealth Trader:
Most folks haven’t noticed… But right now, gold is at a critical level.
If this level is breached, gold and gold stocks will likely scream higher. If the level holds, we’ll likely see a significant pullback.
The thing is, you can’t see this level on a chart of the gold price… or on a chart of gold stocks.
In order to see it, you have to look at an asset that most folks don’t pay attention to. And if they do pay attention, they usually don’t understand why it’s important.
Today, I’ll show you why all gold and gold-stock investors should be paying close attention to the U.S. dollar. The dollar is extremely important to gold because there are two sides to every price.
Let me explain…
When most folks think about the price of something, they simply think about its cost in their home currency. A book costs $10… or a bottle of wine costs $30. In day-to-day life, that line of thinking is fine. But it’s only one side of the story.
When you’re looking at investments, it’s useful to look at both sides…
On one side of a price, you have the product, service, or asset being measured. That’s the book… the bottle of wine… the ounce of gold. On the other side, you have your “measuring unit.” This is the currency you’re measuring the first side with… like dollars, euros, or Japanese yen.
To understand what’s really happening when prices move, you need to understand what’s happening on both sides. Either the product, service, or asset has changed in value… OR the measuring unit has.
When the dollar falls, the number of dollars it takes to buy an ounce of gold rises. Gold may not change in euros or yen. But folks in the U.S. will see the price of gold rise.
Of course, there are other factors that affect the price of gold. But most of the time, when the dollar rises or falls, gold does the opposite.
You can see this relationship clearly in the 15-month chart below. Just look at how peaks in the dollar line up with valleys in gold… and how valleys in the dollar line up with peaks in gold.
It’s not perfect, because as I said, there are other factors that affect gold prices. But you can see the relationship.
Now, let’s move on to the “critical level” for gold…
If you take another look at the chart above, you’ll see that for the past 15 months, the U.S. dollar and gold have both been moving sideways. The dollar is just above where it was 15 months ago… and gold is a little below.
Since early 2015, the U.S. dollar has rallied every time it fell to 94… exactly where it is right now. It has fallen a little below that level. But not by much… and not for long.
As you can see in the following chart of the U.S. Dollar Index, this is a critical level. If it holds, the dollar could rally back up toward 100. This would likely be accompanied by a drop in gold. But if the dollar breaks much below 94, it could start falling fast… and the big rally in gold would accelerate.
I can’t say which way it will go. But I’m watching closely… And you should, too. The action in the U.S. dollar over the next week will have a huge impact on the direction of gold.
Good investing,
Ben Morris
Crux note: Ben has been on top of the recent gold story for his readers since last August when he recommended two mining stocks that are now both up more than 60% each. Then, in October, he recommended a third gold stock… up about 20% to date.
Just yesterday, Ben told readers about another little-known commodity stock that has 100%-plus upside potential over the next few months — not to mention a 6% dividend yield. Learn how to access all of Ben’s best research with a risk-free 30-day trial right here. (This does not link to a long video.)