Gold & Oil Rise As The Dollar Weakens
By Colin Twiggs
October 30, 2007 4:00 a.m. ET (7:00 p.m. AET)
In an attempt to make this newsletter more readable, I will
trial splitting the coverage in two: gold, oil and forex on
Tuesdays; the economy and interest rates on Thursdays. We will
conduct a survey, after a few weeks, to obtain your
Gold is surging ahead after successfully testing support at $750. Expect (medium term) resistance at $800, but the long-term target is $900 [725+(725-550)]. Reversal below $750/ounce is unlikely — and would warn of another correction.
The Fed is expected to cut interest rates this week because of the falling housing market and subprime credit squeeze. This should weaken the dollar and further boost the (dollar) price of gold.
December Light Crude broke through $88/barrel and is advancing rapidly, in line with gold. The up-trend is accelerating, increasing the danger of a blow-off: a sharp rise followed by an equally sharp fall. Reversal below $85 is not expected — and would signal a secondary correction. Expect crude to further appreciate as the dollar weakens.
The monthly chart shows how the current target of $100/barrel is calculated — a far cry from the $20/barrel after the 2001 recession. Remember that the tree never grows to the sky. If we head into another recession, one positive outcome would be far lower oil prices as a result of falling demand.
The euro continues to test the upper border of the trend channel. Reversal below $1.4125 (the low from 22-Oct-07) would warn of a down-swing to the lower channel border. The long-term target is calculated as $1.57, but it may be prudent to use the more conservative target of $1.50 [1.35+(1.35-1.20)].
The dollar is consolidating between 113.50 and 115.00 against the yen. Downward breakout is more likely and would signal a test of support at 112, while upward breakout would indicate another test of 118. In the longer term, failure of 112 would warn of a test of the key 100 support level (from 2005).
The Australian dollar broke through $0.9100, confirming the long-term target of parity with the greenback [89+(89-78)=100]. Expect a retracement to test the new support level of $0.9100. Reversal below $0.8750 is highly unlikely — there is plenty of support in between — and would signal another test of primary support at $0.7700.
As fewer and fewer people have confidence in paper as a store
the price of gold will continue to rise.
~ Jerome F. Smith
To understand my approach, please read Technical Analysis & Predictions in About The Trading Diary.