Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Gold and USD Index Analysis Again Provides Key Trading Signals

Commodities / Gold and Silver 2010 Apr 04, 2010 - 11:13 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleIn the March 26th commentary we wrote that given the historical significance of the RSI being at 70 and the fact that the USD Index has just touched the 50% retracement of the previous rally leads us to anticipate that the recent USD Index rally will stall out and retrace. In addition, a rally for PMs and PM stocks is looking more and more probable.


Since this is exactly what happened, we believe you might want to read our thoughts regarding U.S. Dollar's and gold's next move. Let's begin with the long-term USD Index chart (charts courtesy of http://stockcharts.com), which is once again the main driver of PM prices (we will write more about that particular topic in the following part of this update).

In the previous Premium Update we emphasized that the Fibonacci 50 percent retracement level of the previous (2009 Mar - Dec) decline. Key Fibonacci levels have historically been reliable in identifying key support and resistance, especially on the U.S. Dollar market.

Consequently, the U.S. Dollar moved considerably lower - visibly below the trading channel. This non-confirmation of a breakout is a bearish sign for the USD Index, and a bullish one for the PMs. Please note that once again the RSI at 70 meant a local top in the U.S. Dollar and a local bottom in gold and silver.

Another bullish signal for gold comes from the analysis of its correlation with the U.S. Dollar.

The correlations of the U.S dollar is starting to become more and more aligned with the metals sector, which is something we were looking to see develop as this is what we've seen in the gold / USD markets right before the huge September - December 2009 rally.

Please take a look at the 30-day column at the values of correlation coefficients for USD and gold / gold stocks - they are significantly negative for the first time in the last several weeks. Moreover, at the same time, the correlation between gold / gold stocks and S&P 500 is much lower. This means that gold and corresponding equities are once again mostly USD-driven in the short run.

Silver is still highly correlated with the general stock market, but it doesn't invalidate points made above, as silver tends to move closely with stocks because it has multiple industrial uses.

Therefore, the correlation matrix shows further evidence of the return of the highly negative correlation between USD and PMs. Additionally, the link between gold, mining stocks and the general stock market is much weaker than it was the case during the past several weeks. As mentioned earlier, this is positive news for PMs, because the return of this correlation is what we expected to see before the next big move up.

In our previous commentary we've summarized that the bullish analysis of gold is definitely still intact given the strikingly similar pattern in place back in August of 2009 where we had some consolidation followed by a significant rally.

Please note that the similarity is visible not only in the price itself but also in the RSI and Stochastic indicators. Based on the above chart it seems that even if we are going to see gold move a little lower from here, it will not change the bullish implications of the pattern. Let's take a look at the short-term chart for more details.

Looking at the short-term chart do not anticipate for the move to be immediate. Sure, it may be the case that gold rallies right away (that's why we had mentioned opening long positions in metals), but based on the similarity to the late August 2009, it seems that we may see gold moving slowly higher instead of rallying immediately. This means that if we see a small correction that takes gold $20 lower or so, it should not make you worried. We will let our Subscribers know if we believe that higher prices are not to be expected in the short- and medium-term.

Summing up, the situation in gold is still bullish - the technical analysis patterns are in place, and the strong negative correlation with the U.S. Dollar serves as a confirmation. Over 6-times bigger version of this essay with many important charts, ranking of juniors, comments on the physical PM market, and - most of all - timing details for the end of the current rally in PMs is available to our Subscribers.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2018 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

6 Critical Money Making Rules