Taking a breather

On Wednesday and Thursday, gold digested its gains from the first week after the breakout, trading in a range between Tuesday's high and low. Several days of backing and filling to accommodate those who didn't have a chance to buy between, say, $700 and $720 could supply a base for an assault on the critical $730 mark.

The daily RSI and MACD indicators are looking overbought, with RSI above 70 and the MACD histogram turning down, so a consolidation would be helpful. Gold could conceivably return to the downtrend line, now offering support at around $685, without harming the bullish case.

On the weekly chart, the RSI and MACD indicators have plenty of room on the upside, suggesting it is early days yet for this rally.

Silver is also consolidating, managing to close right on its 50-day MA.

GDX, the gold-mining ETF, is pausing to fill the gap around $42 from the island top in July (there was another island top in the same area in April). Its rising 50-day MA is poised to cross the now slightly rising 200-day MA.

It is no coincidence that gold is taking a breather just as the U.S. dollar index is bouncing after its sharp decline since the beginning of the month. The dollar's RSI has just risen above 30 after falling briefly below that level. This suggests that the bounce has some way to go. It would be quite normal for the dollar to rise to test its former support, now resistance, around 80.