Caveat for further downside in gold, A decline in the US dollar

One caveat for my call on further downside to gold is the possibility for a retracement in the gains experienced in the value of the dollar. The value of the dollar has risen as of late as investors reduced risk and on asset class rotation by institutional investors. In any event, the US dollar index and the Powershares US Dollar Bull Index have increased in value since mid-October. Looking at both are providing some mixed signals as to direction of the value of US dollar.

The following are the charts for the US dollar index and the Powershares US Dollar Index fund (ticker UUP).

What is interesting here is that the US dollar index has broken above both the 50-day and 200-day moving averages. This is while the RSI is in a rising trend and the MACD has turned positive, both indicators that the recent trend in the price of dollar will continue upward.

Turning to the UUP however, the fund is moving into the early September price range on lighter relative volume. To me this suggests a possible pullback, as sellers move into the market in order to take profits or more likely sell into strength in an attempt to break even.I would also note that both the dollar index and the UUP are overbought on their respective stochastic measure.

The dollar index is an important indicator to watch, as the value of dollar and commodity complex tend to move inversely. A pullback in the value of the dollar would likely lead to a rise in a price of gold.