Crude & Commodities Lead Gold Lower

By Colin Twiggs
July 14, 2009 2:30 a.m. ET (4:30 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

Gold

Spot gold continues its downward correction, headed for a test of primary support at $865. After falling sharply through support at $920, the metal then pulled back to test its new resistance level. Breakout above the trend channel would warn that the correction is weakening, but respect of the upper channel is more likely and would signal another down-swing. In the longer term, a rise above $950 would indicate that the correction is over, while failure of primary support at $865 would test the November 2008 low of $700.

Gold miners tend to lead the spot gold price. The Gold Miners Index [GDX] turned up at the lower trend channel, but Twiggs Money Flow (13-Week) bearish divergence warns of strong selling pressure. Downward breakout from the trend channel would be a negative sign for spot prices, while recovery above the long-term moving average (EMA 100) would indicate another primary advance — confirmed if the index rises above 40.

Silver

Spot silver is undergoing a strong secondary correction, headed for a test of primary support at $12. Failure of support would warn of reversal to a primary down-trend — a negative sign for gold — while reversal above $14 would signal another primary advance, with a target of $19.

Crude Oil

Crude oil and commodities prices are undergoing a secondary correction — with Brent Crude tracking the CRB Commodities Index lower. Precious metals are likely to follow as inflation fears ease. Expect crude to test primary support at $50 per barrel.

US Dollar Index

The US Dollar Index is steady for the present, consolidating in a narrow range between 79.50 and 81. Downward breakout is more likely and would indicate a primary down-swing with a target of 73; calculated as 78 - [ 83 - 78 ]. Reversal above 81, however, would indicate that the primary down-trend is slowing — and test resistance at the March low of 83.

Help to keep this newsletter free! Forward this link to friends and colleagues  

Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.

~ Thomas Jefferson (1743 - 1826)