Our May 24 memo noted that both gold and gold shares had registered a rare simultaneous "overbought" condition, which had occurred only 7 times since 1970, the last was in 1993. Typically, the senior stocks sold off by 24% to 31% over the next two months with greater declines for more speculative stocks.

The advice was that most gold shares would take a tradable correction within the bull market. The high for the XAU was 86.8 on June 3 and for gold was 327.8 on June 5. The June 5 ChartWorks recommended selling or shorting gold shares, particularly Barrick and Placer.

The XAU has taken out our target of 63 (-27%) and short covering is appropriate. As in any bull market, long-only accounts could "buy the dips".

For gold's nominal price, the correction measured from the high of 327.8 to originally 295. This was against a rising support band, which is now at 305.

Long positions could be established near this level with the risk limited to 295.

The July 17 ChartWorks noted that the dollar index had registered a Double Capitulation on the weekly reading. The last such reading was at 95.82 in April, 1987 when it weakened to 94.82 in ten days and rallied to 101.7 in August.

The low for the dollar index was 104.1 on July 19 and it has bounced to 106.6 today, from which a test of the lows would be appropriate. The recovery could then run to late August. The longer term will be discussed in Friday's Pivotal Events.