Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

U.S. Dollar Trend Driving Gold, Stocks and Commodities

Commodities / Gold and Silver 2010 Mar 22, 2010 - 10:31 AM GMT

By: Douglas_V._Gnazzo

Commodities

Best Financial Markets Analysis ArticleIt is clearly evident that the direction of the dollar looms large in the general direction of other markets: stocks, commodities, and the precious metals to name but a few. These inter-market correlations do not respond tick by tick, or day by day, but over time they obtain; and to deny them their due can be a costly mistake.


The daily UUP (dollar) chart shows the dollar breaking out and above its falling flag formation (+1.4% wk +3.7% y-t-d). Support was tested and held, and now resistance is about to be tested. Notice that a positive MACD crossover has not yet occurred, and is needed for confirmation. It is possible that the breakout fails. As of now the path of least resistance appears up.

The weekly chart shows a bit of a different picture from the daily. STO appears to be getting ready to break below the 80 level, which, as can be seen by following the blue-dotted vertical lines, usually leads to a correction. CCI has already broken below the 100 level, but is now trying to regain the lost ground.

Overlaid on the chart are a set of Fibonacci retracement levels. Notice that price has previously bumped up into its 38% level, which acted as resistance and stopped its advance. It is about to test that level once again. The dollar may break through resistance on this try; or it may be repelled again. The signals are mixed.  

Gold

Gold was up $4.80 (0.44%) for the week, although it was down hard on Friday, falling -20.40 to close the week out at $1106.80. The chart below shows gold breaking out of a falling wedge pattern in mid-Feb.

It advanced and then corrected, testing the breakout level, which held. Subsequently, gold advanced to around 1150. It then corrected and rallied again, this time putting in a lower high.

Presently, it is testing support extending back to its earlier March low & the Feb. breakout. If support doesn’t hold, a test of the late Feb. low is likely. MACD has made a negative crossover, suggesting more downside action.

Gold is pretty much sitting on the fence: it is either going to hold its recent breakout or fail. The above two charts (discussed in full report for subscribers) show either scenario is possible.

If gold does break down, then a test of support at $1000 becomes more likely. It could go either way. A lot will depend on what the dollar and the euro do.

Gold Stocks

Gold stocks ended the week with a slight gain of +0.32 to close at 45.31 for a gain of +0.71%. Until the dollar broke out on Friday and the stock market finally retreated, the GDX had been up to an intra-week high of 46.84. It gave almost all of the gain back on Friday.

I’m going to quote from last week’s market wrap, as what I said still obtains:

Price is presently testing its 50 ema. If the 50 ema doesn’t hold, the next target would be the rising price channel’s lower trend line around 44.

Considering the stock market is overbought and that gold moved down in spite of a falling dollar, and the weight of the evidence suggests that the path of least resistance for the short term is down.

This volatility is to be expected and is why I warned that the break out in gold might prove to be a short lived trading opportunity at best. Unfortunately, this seems to be the case.

It will be important to see if the GDX can put in a higher low than its earlier March low, especially if it occurs near lower trend line support at 44. This could lay the groundwork (base) for a sustainable rally.

A lot will depend not only on the direction of gold, but on the direction of the dollar and the overall stock market as well. This is why the gold stocks are much riskier than physical: the dollar, gold, and the overall stock market need to be trending in sync (dollar down – physical gold & stock market up) for the gold stocks to shine. This is not the easiest set-up to maintain, but when it does, it’s a thing of beauty (from last week’s 3/12/10 report).

The most important point in all the above, is the last two sentences, which basically boils down to the fact that for the gold stocks to perform well, a lot of different markets need to be properly aligned:

  1. dollar (down)
  2. stock market (up)
  3. physical gold (up)

Occasionally, one out of the three can be misaligned, and the gold stocks still perform well, but if two or more are out of whack – forget about it, the gold stocks end up getting whacked.  However, when the stars are properly aligned, the gold stocks perform like a fine-tuned clock.

With the dollar busting out on Friday, the stock market finally had the excuse it’s been looking for to correct, and the gold stocks went down with it. As one of the email alerts during the week said, although a couple of my recent stock picks (NEM & GOLD) were running up again on Wed., they ended up giving an intra-day gain of over 3% back AND closed down on the day – a nasty reversal.

This is why I booked profits on these stocks and (SWC) a week or so ago and did not buy back in – they were going up for a second time, while gold was not; and while the stock market was overbought and looking for an excuse to go down.

There was too much risk versus reward and the discipline paid off, as the reversal on Wed. was nasty: about a 4% intra-day swing. Sometimes it’s better to be lucky.

This is also why I said that the breakout a couple of weeks ago might be short-lived. The overbought stock market and dollar volatility appeared to be too much for the gold stocks to overcome, at least for now. We’ll see what this week brings. If the dollar continues up, the stock market will continue down, and the gold stocks will follow suit. Once the dollar rally runs its course, however, the markets will likely reverse.

The daily chart below shows price about to test the lower boundaries of its rising channel. If the lower trend line (45) doesn’t hold, then the 38% Fibonacci level near 44 will be tested.

Notice the negative STO divergence mentioned last week, as well as the series of lower highs. The dotted vertical lines show CCI has broken down from overbought levels to below 100 (25). These moves act as good signals of impending corrections when coupled with similar moves down by STO.

The above is an excerpt from this week’s full market wrap report available at the Honest Money Gold & Silver Market Wrap Reports website. Stop by and check out our three month trial subscription.

Good luck. Good trading. Good health, and that’s a wrap.

Come visit our website: Honest Money Gold & Silver Report
New Audio-Book Now Available - Honest Money  

Douglas V. Gnazzo
Honest Money Gold & Silver Report

About the author: Douglas V. Gnazzo writes for numerous websites and his work appears both here and abroad. Mr. Gnazzo is a listed scholar for the Foundation for the Advancement of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

Douglas V. Gnazzo © 2009 All Rights Reserved


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014