Gold Rally, U.S. Dollar Weakness, VIX Spike. What the Charts Say

Gold prices have been on a historic run. (SEBASTIAN DERUNGS/AFP via Getty Images)

Key Points

• Gold has broken out above an upward channel, with a measured move pointing to $4400.
• The iShares Russell 2000 ETF which tracks small-cap stocks, formed a bearish evening star pattern and may be vulnerable.
• The CBOE Market Volatility Index and closed at its highest reading in nearly six months, an indication that nerves remain on edge.
• The U.S. dollar is showing signs of a bullish inverse head-and-shoulders pattern, a classic reversal setup.

No trend lasts forever. Even the current bull market in gold will eventually fall victim to this adage.

A question I’ve been hearing more often lately is why the precious metal continues to rally so strongly? Is it sensing something the rest of the market hasn’t caught on to yet? The chart below shows just how powerful the move in precious metals has been. This week, gold is breaking out above an upward channel that has been forming over the past six weeks, following a breakout above a bull flag pivot at $3500. While the metal does appear stretched, that doesn’t mean the uptrend is over. The measured move points to a target around $4400, though that level should be seen more as a guide for managing positions rather than a firm ceiling. The key question is whether gold’s strength is acting as a canary in the coal mine for broader market stress.

Gold was trading at $4234 Friday.

The gold rally shows no signs of letting up.

One of the key gauges of market risk appetite is the small-cap sector, as many of these companies are unprofitable and require strong investor optimism to attract capital.

On the daily chart below of the iShares Russell 2000 ETF, Oct. 15 printed a doji candle, which often signals a potential shift in trend. Yesterday the ETF completed a bearish evening star pattern, and it is once again testing its important 21-day exponential moving average. The Oct. 10 dip below that influential line was quickly reversed, but another close below it so soon could open the door to a deeper pullback, with $230 as a logical downside target. That would mark a retest of the cup-with-handle breakout level from Aug. 13. It’s worth remembering that similar doji patterns in January preceded a sharp 60-point drawdown, highlighting the potential weight of this current setup.

The iShares Russell 2000 ETF was trading at $243.48 Friday.

A bearish evening star pattern completed on the Russell 2000 Thursday.

The U.S. dollar remains an underappreciated risk signal that deserves closer attention. While I’m not outright bullish on the dollar just yet, any upside shift in price action could quickly draw marketwide focus. The chart of the shows recent softness after hitting resistance at its downward-sloping 200-day simple moving average, yet a bullish inverse head-and-shoulders pattern —a classic reversal setup—is still taking shape. A decisive move above $28 could spark a rally toward $29.25, a level last seen early this year. Despite being down roughly 10% from its 52-week high, the fund has quietly advanced five of the past seven weeks, and has flirted with the round-number resistance at $30 in the fourth quarters of 2023 and 2024. Could we be setting up for a repeat? It’s a scenario worth watching closely. A move below $27.50 would negate any bullish stance.

The Invesco DB U.S. Dollar Index Bullish Fund was trading at $27.79 Friday.

The dollar has been soft but quietly trading sideways.

The is flexing its muscles above the key round number level of $20, a threshold it has largely avoided in 2025, except for the brief spike between March and May. On the chart below, it’s clear the index has historically backed off quickly from this level. But is this time different? The 30% surge on Oct. 10 came with escalating U.S.-China tensions, possibly signaling deeper market concern. The Oct. 16 close marked the highest reading in nearly six months, and if the VIX begins to sustain levels above 20, it could act as fuel for a broader market pullback. At the very least, continued elevation here suggests the intraday volatility we’ve been seeing is likely to persist. Notably, in today’s premarket session, the VIX spiked into the upper $20 range before sharply reversing, another sign that market nerves remain on edge.

The Cboe Market Volatility Index was trading at $23.15 Friday.

Big spikes in VIX and a sustained move above $20 speak to further volatility in equity markets.

I’m still firmly in the camp that the S&P 500 is heading toward 7000 by year end or early 2026. But a 5% pullback along the way would be healthy and help preserve the strength of the uptrend.

Write to Doug Busch at douglas.busch@barrons.com