Gold Follows Through As Dollar Weakens
By Colin Twiggs
September 17, 2009 3:00 a.m. ET (5:00 p.m. AET)
The US Dollar Index continues to decline, testing short-term support at 76 — which increases upward pressure on gold, crude oil and general commodity prices. Medium-term target for the index remains at 74*. Recovery above the descending trendline is most unlikely, but would warn of reversal to a primary up-trend.
* Target calculation: 78.5 - ( 83 - 78.5 ) = 74
Spot gold confirmed its breakout above $1000 with a rise above short-term resistance at $1010, and is now testing $1020. The primary advance offers a medium-term target of $1100*, but first expect retracement to test the new support level. Reversal below $970 is unlikely, but would warn of a correction to test primary support at $900. In the long term, breakout above $1000 offers a target of $1300*; failure of support at $900 is most unlikely, but would test the November low at $700. The primary determinant of gold direction is US inflation expectations and consequent stability of the dollar.
* Target calculations: 1000 + ( 1000 - 900 ) = 1100 and 1000 + ( 1000 - 700 ) = 1300
The Market Vectors Gold Miners Index [GDX] is testing its upper trend channel after breaking resistance at $45. Divergences between gold miners and spot gold often forewarn of changes in the spot price.
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Spot silver broke through resistance at $16 before advancing to the upper trend channel. Breakout above the trend channel would offer a target of $19*. Expect medium-term retracement to test the new support level. Respect would be a bullish sign, while failure of support would indicate weakness. Reversal below $15 is unlikely, but would warn of a bull trap.
* Target calculation: 16 + ( 16 - 13 ) = 19
A recovering RJ/CRB Commodities Index indicates stronger industrial demand for platinum. Breakout above resistance at $1300 signals a primary advance with a target of $1500*.
* Target calculation: 1300 + ( 1300 - 1100 ) = 1500
Crude oil threatens to complete a large ascending triangle, testing resistance at $72/$73 a barrel. Breakout would signal a primary advance with a target of $84*. Reversal below the rising trendline is unlikely, but would warn of a bull trap.
* Target calculation: 72 + ( 72 - 60 ) = 84
Investing isn't about specific forecasts, but about repeated actions and long-term discipline
.... taking greater risk in periods where the average return/risk profile is strong, and avoiding risk where the average return/risk profile is weak.
~ John Hussman