Gold Rallies As Dollar Declines
By Colin Twiggs
November 4, 2009 1:00 a.m. ET (5:00 p.m. AET)
The US Dollar Index broke through resistance at 76 before consolidating in a narrow band. Consolidation above the new support level is a continuation signal, indicating a test of 77.50, but the index is once again testing support at 76 after a false breakout. Respect of support would signal that the primary down-trend is weakening, while failure would again test support at 75. In the longer term, breakout above 77.50 would indicate that the down-trend has ended. Reversal below 75, on the other hand, would offer a target of 74*.
* Target calculation: 75.00 - ( 76 - 75 ) = 74
Spot gold rallied sharply on news that the Reserve Bank of India, normally an astute buyer, purchased 200 tons from the IMF (WSJ). The short-term target is $1100*, but we could see further retracement to gauge support at $1000 before the long-term target of $1300* is tested.
* Target calculations: 1000 + ( 1000 - 900 ) = 1100 and 1000 + ( 1000 - 700 ) = 1300
Gold miners are lagging rather than leading spot gold as they normally do. The Market Vectors Gold Miners Index [GDX] is headed for a test of the upper trend channel at $50. The broadening wedge over the last 2 months is a bullish continuation pattern. Reversal below $41 is most unlikely, but would warn of a secondary correction. Divergences between gold miners and physical gold often forewarn of changes in the spot price.
Spot silver is also lagging gold, headed for a test of the upper trend channel. Given the positive influence of gold, short-term resistance at $18 is unlikely to hold, but long-term resistance at $19 offers sterner opposition. The right-angled ascending broadening wedge over the last 2 months, however, is a bearish formation. Reversal below $16 seems unlikely, but would warn of a secondary correction to the lower trend channel.
Platinum is headed for a test of resistance at $1370. Breakout would offer a target of $1440*, while reversal below $1300 would be a strong bear signal given the large rising wedge pattern.
* Target calculations: 1370 + ( 1370 - 1300 ) = 1440
Crude oil is retracing to test support between $72 and $75. Respect would signal primary advance to $85*. Reversal below the rising trendline is unlikely, but would warn that the primary up-trend is weakening, while failure of support at $66 would signal a reversal.
* Target calculation: 75 + ( 75 - 65 ) = 85
There's a huge bubble, because we have zero rates in the US, zero rates around the world and a huge carry trade.
Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates.
And then they invest in risky assets: commodities, equities, credit. We're creating a bigger bubble than before.
~ Dr. Nouriel Roubini, October 23, 2009