Gold tests resistance as dollar weakens

By Colin Twiggs
February 23rd, 2011 9:30 p.m. ET (1:30 p:m AEDT)

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 Dollar Index is testing medium-term support at 77 and failure would threaten primary support at 76. Completion of a Twiggs Momentum (21-day) peak below zero would warn of continuation of the primary down-trend. Breach of primary support would offer a target of 71*.

* Target calculation: 76 - ( 81 - 76 ) = 71

Gold

Gold is testing resistance at $1420 in response to the weaker dollar and turmoil in the Middle East. Breakout above $1420 would signal a fresh advance to $1520*. A Twiggs Momentum (21-day) trough above zero would confirm.

* Target calculation: 1420 + ( 1420 - 1320 ) = 1520

Rising Twiggs Money Flow (13-week) on GLD indicates buying pressure. Again, a trough above the zero line would signal a primary advance.

Silver

Silver's brief consolidation, between $32.50 and $34.50 per ounce, is another bullish sign. Breakout above $34.50 would indicate that the up-trend is accelerating.

* Target calculation: 31 + ( 31 - 27 ) = 35

Crude Oil & Commodities

Chaos in Libya is fueling an accelerating up-trend in crude prices. Twiggs Momentum (21-day) rising above its existing band confirms. The target of $110/barrel* has now been reached.

* Target calculation: 90 + ( 90 - 70 ) = 110

Commodities

The upward trend channel on the CRB Commodities Index reflects a strong rise in a broad range of commodities, from crude to copper, from cotton to cocoa. The Australian dollar is lagging after tracking the CRB index closely for the last two years; expect an upward breakout and fresh advance.

Euro

The euro is headed for another test of resistance at $1.42, but bearish divergence on Twiggs Money Flow warns of another correction to test primary support at $1.28.

UK Pound Sterling

The pound is stronger, with rising Twiggs Money Flow indicating buying pressure. Breakout above $1.62 would test the 2009 high of $1.70*. Failure of primary support at $1.53 is now unlikely.

* Target calculation: 1.62 + ( 1.62 - 1.53 ) = 1.71

Japanese Yen

The yen continues to range between ¥80 and ¥84.50 against the dollar. Twiggs Momentum oscillating around the zero line indicates uncertainty. Breach of support at ¥80 would warn of a primary decline to ¥76*, while breakout above ¥84 would signal the end of the down-trend and a primary advance to ¥88*.

* Target calculation: 84 + ( 84 - 80 ) = 88; 80 - ( 84 - 80 ) = 76;

Australian Dollar

The Aussie dollar is again testing support at parity against the greenback. The large ascending triangle is a bullish sign and a rising CRB Commodities index strengthens the signal. Breakout above resistance at $1.02 would offer a target of $1.08*.

* Target calculation: 1.02 + ( 1.02 - 0.96 ) = 1.08

If you attempt to control the citizenry by an over abundance of laws enforced by punishments, the people will circumvent the laws without any sense of guilt. If you remember the oneness of the citizenry and keep the laws basic and in harmony with proven traditions and rituals, the people will think twice before breaking the law.

~ The Analects of Confucius