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This week we look at the dollar index and gold. The dollar hit its low on November 26 at 74.17 and staged an important rally for about a month to 78.45. At the same time, gold, which follows the lead of the dollar index, hit its high on December 3, several days after the dollar index hit its low. And for the same month the dollar index went up, gold went down in its inverse relationship, from 1227.20 to a low of 1074 on December 22.

My pattern work is telling me that the dollar has completed a minor pullback, a digestion phase of its upleg. Friday it turned up and it's about to take off, challenge the high at 78.45 and take off to 80-82. If that happens and the inverse relationship remains true with gold, then gold has finished its countertrend rally and is about to resume its decline to 1074 and break that on the way to 1000 if not 950-20.

Why have I put this up today? Because I think this is the beginning of a much larger rally period for the dollar, and decline in gold. This could be fueled by the Massachusetts election, indicating a movement across the country to curb deficit spending (with deficits being the fodder for dollar shorts).

Those who wish to be long the dollar may consider the ProShares DB US Dollar Index ETF (UUP), and those shorting gold may consider the SPDR Gold Shares (GLD).