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Gold Sideways Megaphone Pattern Continues, Is the U.S. Dollar the Key?

Commodities / Gold & Silver 2009 Aug 23, 2009 - 11:06 AM GMT

By: Merv_Burak

Commodities

Best Financial Markets Analysis ArticleGold is still in that megaphone pattern and still going nowhere but sideways.  One would expect that it can’t continue like this much longer but who knows?


U. S. Dollar Index

          

I think that many gold investor/speculators are looking to the U. S. $ for some sign as to which way gold will go.  There is a very large contingent of industry professionals that correlate the dollar movement with that opposite to gold.  Now, some time back (I guess a couple of years ago) I showed a correlation between the U.S. $ Index and gold price movement.  That did show a long term correlation but not all the time, so one must always be prepared for the next movement maybe being another of those “not this time” events.

However, looking back at the U.S. $ Index and who was President at the time there is another correlation here.  In recent times, going back some 25 years (because that’s the amount of historical data I have) it seems that the U.S. $ drops in value during Republican Presidents and increases in value during Democratic Presidents.  Now, it’s not that simple.  It depends upon who controls the spending and what that spending looks like.

As everyone knows (don’t you all?) the President DOES NOT control spending.  It is the responsibility of Congress (the House of Representatives and the Senate) to initiate and approve spending measures.  So, what did Congress look like and how were they acting during these periods of U.S. $ Index movements?

I’m going on memory so don’t hold me to exact accuracy.  As I remember, during Reagan’s time the Congress was controlled by the Democrats.  Although the tax reductions under Reagan did increase revenues Congress in their wisdom spend like drunken sailors (my apologies to drunken sailors).  The Democrats effectively controlled Congress until the Gingrich revolution is late 1994.  The Republicans basically controlled Congress till the end of Clinton’s Presidency.  When Bush (the younger) took over, Congress remained in Republican control but not full effective control.  They lost a lot of seats in both the House of Representatives and the Senate.  The Democrats took over full control of Congress during the elections of late 2006.  They were in full control during the major spending period of the last two years of the Bush Presidency.

In the matter of the U.S. $ and the U.S. economy, Congress should take the credit and the blame, NOT the President. 

So, if you want to get an idea of the Dollar’s movement over the next years you need to know the political leanings of Congress over that period.  For the next year, at least, it will be spend, spend, spend.  The Dollar would be expected to drop, drop, drop.  After that, it depends upon the elections in late 2010.

One thing that comes out of this is that the Dollar performance is not as much dependant upon if Democrats or Republicans control Congress but what their real actions will be, spending or limited government? 

So much for another of my space filler.

GOLD

 LONG TERM

Back to our real world of what’s happening NOW.  Long term there has not been enough real gold movement to affect the long term rating.  Gold remains above its positive sloping long term moving average line and the momentum indicator remains in its positive zone.  The volume indicator had moved into new all time highs earlier in the month but is now moving sideways.  The long term P&F chart remains positive.  The rating must remain BULLISH for now.

INTERMEDIATE TERM

It continues to be frustrating trying to gauge the intermediate term rating.  I am going strictly upon the combination of indicators at the time of analysis.  Other considerations may give a different impression of where we are.  The price of gold has been moving sideways and as such has been closing above, below, above, below, etc. its moving average line.  At the Friday close it is once more above its moving average line and although the line turned down on Monday it turned back up on Friday.  The momentum indicator has been a little less volatile.  It has remained above its neutral line for a few weeks now and is once more above its trigger line.  The volume indicator, although moving sideways, remains above its positive sloping trigger line.  On the intermediate term the rating remains BULLISH for another week.

The latest price action remains in that megaphone pattern as it moves closer to the apex point.  It is now in the location that further sideways movement inside the megaphone should reduce the strength of any move following a break-out.

SHORT TERM

             

In the past few days everything in the short term seems to be perking up.  Friday was a good up move, almost nullified Monday’s downside move.  The ups and downs are getting smaller and smaller.  Unless the action is expected to move in a straight line from here this gradual decrease in the height of the moves will have to stop and take on a different character.  For now the Index closed Friday above its positive sloping moving average line and the momentum indicator is once more in its positive zone above its positive trigger line.  The volume activity could be better and is neutral at this time.  The short term rating is back to BULLISH.

As for the immediate direction of least resistance, I guess that would be to the up side based upon the recent price move and the Stochastic Oscillator moving into its positive zone.

SILVER

 Silver did not perform as well as gold during this past week but that has not changed the relative performances of the two over the past three time periods.  Although their declines were still relatively small the two Merv’s Silver Indices had by far the largest declines this past week of any of the Merv’s Indices.  Is silver being shoved back to the background or is this just an over reaction to their previous advances?  Another week like this and I can see the two shorter term ratings moving into the NEG level.  For now they are still not that far gone.

PRECIOUS METAL STOCKS

An interesting note, almost all of the Merv’s stock Indices were on the down side this past week (the Penny Arcade was up 2.4%, however) while almost all of the major North American Indices were on the up side.  I guess the thinking would be that the more aggressive stocks were losers this week while the higher quality were winners, except for the Penny Arcade, of course.  The real penny stocks are still on gambler’s minds so all is not lost for this market.  Until they throw in the towel one can assume that the basic sentiment is still positive for gold and silver stocks.

Non-Edible Futures

Some time back I developed an Index of what I called the Non-Edible Futures.  This included 26 futures contracts made up off the metals, energy, currency, market Indices and Financial futures, all the stuff one can’t eat.  What good is the Index?  I’m never really sure but here it is for your information.  Make what you will out of it.

          

 One thing this Index seems to show is that the Non-Edibles seem to be ahead of the general public in their perception if we are in an economic mess or not.  It topped out a long time before the public was really aware we were into an economic mess and now it seems to be well ahead of the public realizing we may be getting out of the mess, and the “stimulus” was nowhere in sight when the Index finally bottomed out.  Even now very little of the “stimulus” money has seen the light of day as far as any “stimulus” spending programs are concerned.  Was the “stimulus” really necessary?

MERV’S PRECIOUS METALS INDICES TABLE

Well, that’s it for another week.

By Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
for Merv's Precious Metals Central

For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at http://techuranium.blogspot.com .

During the day Merv practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv dons his other hat as a Chartered Market Technician ( CMT ) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada 's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE .

To find out more about Merv's various Gold Indices and component stocks, please visit http://preciousmetalscentral.com . There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors.

Before you invest, Always check your market timing with a Qualified Professional Market Technician

Merv Burak Archive

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