Gold Warns Of Dollar Weakness
By Colin Twiggs
September 3, 2009 12:00 a.m. ET (2:00 p:m AET)
Spot gold broke through resistance at $970, the strong blue candle signifying buying pressure. Expect a test of the key $1000 resistance level. Reversal below $970 is unlikely, but would warn of a bull trap — confirmed if support at $925 is penetrated. In the long term, breakout above $1000 would offer a target of $1100*, while failure of support at $900 would signal a test of the November 2008 low of $700. Rising gold prices reflect falling confidence in the US dollar.
* Target calculation: 1000 + ( 1000 - 900 ) = 1100
The US Dollar Index is consolidating in a narrow range at the declining trendline, between 78.00 and 79.00. Expect a downward breakout, signaling another down-swing with a target of 74*. Reversal above 79.00 is unlikely, but would indicate a test of 81. In the long term, breakout above 81 is unlikely, but would signal a primary up-trend with an initial target of the March low at 83.
* Target calculation: 78.50 - ( 83 - 78.50) = 74
The euro is likewise expected to strengthen. Breakout above resistance at $1.44 would signal a primary advance to $1.50*. Downward breakout from the rising trend channel is unlikely, but would indicate a test of primary support at $1.38. In the long term, penetration of support at $1.38 would signal a primary down-trend with a target of $1.32*.
* Target calculations: 1.44 + ( 1.44 - 1.38 ) = 1.50 and 1.38 - ( 1.44 - 1.38 ) = 1.32
The pound is weakening as a result of steps taken by the Bank of England (quantitative easing) to debase the currency. Having broken through the key support level of A$2.00 against the Australian dollar, expect further weakness. Target calculation for the current down-swing is difficult, because of the "flat" rally from A$2.00 to A$2.10. My best estimate is $1.75*.
* Target calculation: 2.00 - ( 2.30 - 2.05 ) = 1.75
The dollar broke through support at both ¥94 and ¥92.50, indicating a test of the lower channel. Reversal above ¥94 is most unlikely, but would warn of an upward breakout from the trend channel.
The Aussie dollar continues to consolidate between $0.82 and $0.85 against the greenback, with a positive interest rate differential (compared to major trading partners) offsetting weak commodity prices. The declining CRB Commodities Index, however, warns of increasing downward pressure. Reversal below $0.82 would signal a test of primary support at $0.77, while breakout above $0.85 would indicate a primary advance to $0.90*.
* Target calculation: 0.80 + ( 0.80 - 0.70 ) = 0.90
Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good.
~ Thomas Sowell