Gold fell below $1030 as the dollar took its first step upward. As the dollar bounce eases off, let’s see what happens.

One scenario is the dollar stays above its recent low of 75 and gold stays below $1070. If things reverse from there, that will be the first confirmation of a dollar rally.

We might get some more weakness in the dollar in the near future, even if it rallies here decisively. The real dividing line is 71 on the dollar index.

At the moment, it seems unlikely that anything other than another market crash would give the dollar real strength. So that is the real signal. Opinions remain divided - most savvy commentators seem to lean toward the crash scenario, but a number of credible voices are saying the recovery is real and this is the beginning of an inflationary storm.

In any case, the S&P is bouncing around the 1060 level and lately has shown some weakness. Let’s see if it turns into a solid decline.

Personally, it seems the schizophrenic attitude is a reflection of the actions by the Fed to reflate the banks and stock market, while the average consumer is wallowing in rising unemployment and shifting toward a saving mentality. US Treasuries remain strong, which could be a warning sign. They will almost certainly collapse at some point, but maybe we get another panic first.

Early November is another turning point. The current bounce in gold could stop then. Technically, it could get to $1100 or so by end of year and still decline in a big way. But if a decline does not develop soon, there will be more evidence that the decline may not be so deep. And of course, there is always the possibility that gold could just take off from here and never look back.

We just need to watch the dollar.