Dollar Bounce Hurts Gold

By Colin Twiggs
August 11, 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.

US Dollar Index

The US Dollar Index retreated above 78.50, warning of a bear trap. Recovery above 79.50 would confirm the trap, while breakout above 81 would indicate a trend reversal with an initial target of the March low of 83. Retreat below 78.50, however, would test the lower channel border around 74*. The rising US dollar indicates weaker gold and oil prices.

* Target calculation: 78.5 - ( 83 - 78.5 ) = 74

Gold

Spot gold retreated below support at $950, warning of a possible bear trap. Penetration of the rising trendline would strengthen the signal, while failure of support at $925 would confirm. Reversal above $960, however, would signal a test of $1000. In the long term, breakout above $1000 would signal a primary advance with a target of $1100*, while failure of support at $900 would test the April low of $865.

* Target calculation: 1000 + ( 1000 - 900 ) = 1100

The Market Vectors Gold Miners Index [GDX] retreated below $40. Failure of support at $35 (and breakout below the trend channel) would warn that the primary trend is reversing; penetration of support at $30 would confirm — a bearish sign for spot gold. Twiggs Money Flow (21-day) reversal below zero would strengthen the signal.

Silver

Spot silver is retracing to test support at $14.00, the lower trend channel. Respect of support would signal an advance to $16.00, a positive sign for gold, while failure would warn of a test of the July low at $12.50. In the long term, failure of support at $12.50 is unlikely, but would test primary support at $12.00; while breakout above $16.00 would offer a target of $19.00*.

* Target calculation: 16 + ( 16 - 13 ) = 19.00

Crude Oil

Crude oil is retracing to test the new support level at $73 [green], in line with the CRB Commodities Index. Respect would signal a primary advance with a target of $86*/barrel, while reversal below $67 [orange] is unlikely, but would signal a bull trap.

* Target calculation: 73 + ( 73 - 60 ) = 86

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~ Vaclav Havel