Gold Rallies As Dollar Declines

By Colin Twiggs
November 4, 2009 1:00 a.m. ET (5:00 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 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

Gold

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.

Silver

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

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

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

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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

	Gold Rallies As Dollar Declines By Colin Twiggs November 4, 2009 1:00 a.m. ET (5:00 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 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 Gold 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. Silver 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 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 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 Help to keep this newsletter free! Forward this link to friends and colleagues 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	Share: A+ A− FREE 12-month subscription to The Patient Investor Get the insights you need to stay ahead in financial markets when you sign up to Incredible Charts premium service by 31 December. Start Now Incredible Charts Try our popular premium stock charting software, with proprietary trading tools and powerful stock screens. More than 420K downloads Suitable for Windows 10 & 11 Start with a 5-day Free Trial Download Premium Web Charts Premium cross-platform web charts with proprietary trading tools and powerful stock screens. No downloads or installation required. Suitable for Windows, macOS, and Linux operating systems. 5-day Free Trial Trading Diary Free education, with technical updates and macro outlook. Join Now
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