This week's commentary from Pinnacle Digest:

Stocks rebounded and erased all of last week's losses by rising for the fifth week in six. The S&P 500, which is considered to be the best indicator of the US market (much better than the Dow), is at its highest level since October. Positive news from US housing starts put an exclamation mark on an all around positive week.

• Sales of existing homes in July rose 7.2%, which is the highest in ten years since records began being recorded.

• Sales of existing homes in July exceeded all expectations when they rose to the highest level since August of 2007.

• Earlier in the week it was reported that housing starts for single-family homes rose in July for the fifth consecutive month (and have reached the highest level since October).

These are three very positive signs for the housing sector in the US, which has been at the core of the economic recession for a long time. The IMF has reported a re-evaluation and potential increase in their forecast of global economic growth for 2010. John Lipsky, First Deputy Managing Director of the IMF, said that they may increase their outlook as signs of growth return.

EYE ON GOLD

Gold has not been doing what many expected. The dollar has held up surprisingly well, the markets are running away and stability has come back to the market as the VIX (Chicago Board Options Exchange Volatility Index) sits close to a year low. Remember that the VIX is generally the standard for monitoring volatility across the markets. On October 24, 2008 (during the crash) the VIX hit an intraday high of 89.53 and over the past 6 months has stabilized and now sits at 25.01.

Why is Gold not plummeting in value as fear resides and equities and the US dollar provide seemingly much more profitable investments?

One reason. The smart money knows that inflation is coming. They don't know exactly when, but they know that when it hits, gold will have its day and there will be extensive profits to be had. This forward thinking has kept gold above $900 an ounce despite the markets giving it plenty of reasons to drop below that mark.

There is an internal battle going on right now between deflation and inflation. At some point inflation is going to take over. There has been too much paper money printed over the last year to stop it. Hyper-inflation and at least severe inflation will have a definite chance of occurring at some point in the next few years.

A staff member at Pinnacle found a very interesting quote a few days ago. We'd like to share it with you.

"Gold is like an unfaithful wife. One day it follows the dollar, one day it follows oil, one day it follows stocks." Leonard Kaplan, President of Prospector Asset Management in Evanston, Il.

We all found this quote humorous, but very true of late. Gold has simply been ignoring its long-time characteristics as a commodity which thrives on negative news and fear. It has been holding steady and even increasing in value during this 5 month long rally.

Gold doesn't want to miss out on this rally. It has been trading between $920 and $960 for months. Historically, this is an exceptionally high valuation and needs to be studied and watched closely. Gold is waiting for its opening. Consider how much money has been printed and injected into our economy through bail outs and stimulus in the past 10 months. The number is in the trillions. Several trillion dollars cannot be injected into our financial systems around the world and then one day taken out without any consequence. As an investor you have to understand this.

Right now gold is a dark horse. It is waiting in the shadows for its moment to step back into the limelight. Don't take your eyes off of gold and the indicators which surround it... Like all great investments, it will be timing and patience that determine your success.