The dollar is facing an important test.

The U.S. Dollar Index ($USD) bottomed in early September. It then went on to gain more than 4% in the next two months.

Now… a 4% gain may not seem like much in the world of stocks. But, for a currency, that’s a tremendous move higher.

Since the start of November, though, the dollar has been under pressure. It’s down 1%, and the chart appears to have broken its bullish pattern of higher highs and higher lows.

Take a look…

$USD broke below the rising (red) support line last week. The next support is the 50-day moving average (MA) line just below at $93.33.

Dollar bulls need this level to hold. Otherwise, the buck is likely headed back down to retest its September low.

Of course, this chart is important to gold traders too. Gold and the dollar tend to move in opposite directions (that’s not necessarily true for gold stocks and the dollar – which we’ve discussed before).

So, while dollar bulls are hoping for support to hold up, gold bulls are looking for a breakdown.

For the moment, we have to give the dollar the benefit of the doubt. Since the buck is trading above its 50-day MA, the momentum is still bullish. Support is likely to hold – at least on the first test. And the dollar is likely to bounce soon.

But if that bounce fails to rally the dollar above the early-November high, and instead rolls over again from a lower high, then look out below. We’ll have a new downtrend in place.

That increases the odds of the dollar breaking support sometime in December. And that – logically – increases the chances of a year-end rally in gold.

Best regards and good trading,

Jeff Clark

P.S. While a year-end gold rally would be profitable for gold stock investors, my Delta Report subscribers will do even better…

And it’s all thanks to a “secret key” I discovered on March 2, 2000, when I turned what was nearly a devastating loss into an absolute fortune.

To hear my story and learn more about my “secret key,” click here.

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