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Will dollar support stem gold & silver rise?

By Colin Twiggs
October 31st, 2013 2:00 a.m. EDT (5:00 p:m AEDT)

These extracts from my trading diary are for educational purposes. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor. Full terms and conditions can be found at Terms of Use.



The Dollar Index found support at the 2012 low of 79 and is likely to test resistance at 80.50. Respect would confirm the primary down-trend, with a medium-term target of 77.50*. Breakout above 80.50 is unlikely, but would indicate weak selling pressure. The falling dollar is expected to boost gold and commodity prices.

Dollar Index

* Target calculation: 79 - ( 80.5 - 79 ) = 77.5

The yield on ten-year Treasury Notes found support at 2.50 percent and is expected to rally to test the descending trendline at 2.60 percent. Respect would signal a decline to 2.40 percent. Falling yields depress the dollar while lowering the opportunity cost of holding precious metals; both increasing upward pressure on gold. Respect of primary support at 2.40, however, would warn of an advance to 3.60 percent.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 - 2.40 ) = 3.60

Gold

Spot gold is testing resistance at $1350/ounce. Breakout would indicate a primary advance to $1600*, while follow-through above $1425 would confirm. Respect of resistance is less likely, but would warn of another test of primary support at $1250.

Spot Gold

* Target calculation: 1425 + ( 1425 - 1250 ) = 1600

Silver is similarly testing resistance at $22.50/ounce. Follow-through above $23 would indicate a primary advance — confirmed if resistance at $25 is broken — while a fall below $22 would re-test primary support.

Spot Silver

Crude Oil

Nymex crude below medium-term support at $98/barrel and 13-week Twiggs Momentum crossing to below zero both warn of reversal to a primary down-trend. But recovery above resistance at $103 would negate this. Divergence of Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.

Brent Crude and Nymex Crude

Commodity Prices

China, a primary driver of commodity prices, continues to offer mixed signals. The Shanghai Composite Index recovered above medium-term support at 2150, suggesting another test of the upper trend channel. A failed swing, or downward breakout from the trend channel, would warn of correction to test primary support at $1950; a bearish sign for commodity prices.

Shanghai Composite Index

Dow Jones-UBS Commodity Index continues to test medium-term support at 126. Breach would indicate a test of the primary level at 124. Recovery above 130 still seems more likely — and would signal a primary up-trend. A 13-week Twiggs Momentum peak below zero, however, would warn of a continuing down-trend.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 - 125 ) = 135

Copper prices, bellwether for the global economy, tested 2011 lows at $6800/tonne over the last few months. Prices are now rallying to test resistance — and the descending trendline — at $7500/tonne. Breakout would signal a primary up-trend, as would recovery of 13-week Twiggs Momentum above zero; a bullish sign for the global economy.

Copper

There is usually only a limited amount of damage that can be done by dull or stupid people. For creating a truly monumental disaster, you need people with high IQs.

~ Thomas Sowell

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