The precarious global economic situation has investors, banks and countries buying gold and silver as a hedge against a currency meltdown in the coming years. Trading volume has been anemic as the average investor remains leery of putting money into the market for long-term growth.

Yet equities continue to rise. We all know light volume allows Wall Street powerhouses to bid the market up. Not to mention the quantitative easing taking place. While we don’t know for sure that quantitative easing is taking place as we speak, the sharp drop in the U.S. dollar and strong move up in gold show that it is being priced into the market.

To get a better read on the current market trend, let’s take a look at some charts.

Amex Gold Bugs Index (HUI)

This long-term monthly chart of HUI provides valuable trading signals for both gold stocks and gold bullion. As you can see below, this index is trading at a key resistance level after forming a bullish three-year cup-and-handle chart pattern.

The next one to two months for the precious metals sector will be interesting as it tries to break above key resistance. I would really like to see the HUI to SPDR Gold Trust (NYSE: GLD) ratio break to the upside to confirm this breakout.

SPY Daily Long-Term Trend

The broad market as evidenced by the SPDR S&P 500 (NYSE: SPY) looks to be forming a short-term topping wedge. If this is to occur, I expect it to take several weeks to play out. Looking at the chart, if we use Fibonacci retracements along with trendline support, we can get a feel for where this pullback should correct to.

That being said, the broad market breadth and internals seem to be holding up, indicating higher prices over the long run. While the short-term price action is overbought, and I expect a pullback to form, my analysis is pointing to higher prices as we go into year-end.

UUP Daily Price Action

Although the majority of investors have a bearish outlook on the economy, we have seen a large price appreciation in equities and precious metals. This is largely due to the fact that the U.S. dollar is quickly getting devalued. Simply put, as the dollar drops, it helps to boost commodities and stock prices.

While a rising stock market is great to see, at some point the dollar will become so cheap that it will start to have a very negative effect on the U.S. economy, commodities and stocks. Being from Canada, it has always been more expensive to take holidays in the United States, and I remember paying $1.50-$1.70 for every greenback. But now the dollar is almost at par, making holidays very affordable. The big question/concern is when the government will stop the printing presses. At the rate they are going, the greenback will be at par with peso … well not that extreme, but you get the point.

Below is the chart of the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP).

The market has a way of making sure the majority of traders miss major turning points. As the saying goes, “If the market doesn’t shake you out, it will wear you out.” It seems we are getting the latter.

The never ending grind higher in precious metals has not had any big shakeouts; rather it’s wearing out any short positions before rolling over to take a breather. As for the stock market, we are getting much of the same thing as the market grinds higher day after day, wearing out the shorts before rolling over.

That being said, there is more at work here than just regular market movements. With the light volume in the market, we price manipulation and quantitative easing is helping to boost prices and exaggerate market movements.

You can get my ETF Trade Alerts for Low-Risk Setups here.

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