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U.S. Dollar Double Top Points to New Gold Bull Run

Commodities / Gold & Silver 2009 Mar 01, 2009 - 03:39 PM GMT

By: Clive_Maund

Commodities Best Financial Markets Analysis ArticleGold ran at its highs of last March, before reacting back heavily, as expected and predicted in the last update. The 1-year chart makes very clear why it has reacted back so. It hit the upper return line of a steep uptrend channel in a very overbought condition as shown by the RSI and slow stochastic on this chart, and various other oscillators that are not shown. Hence it had very little chance of following through with a breakout to new highs, as we had earlier observed. Despite its retreating back from the vicinity of its dollar highs there can be doubt that recent action has been bullish and augers well for the future, for with the break above the October highs, gold can be seen to have broken the trend of lower highs and lower lows that dogged it last year, with the result that all its principal moving averages have swung into bullish alignment - and it has broken above the last restraining fan line, opening the door to another major upleg.


While it is true that the reaction of the past week has resulted in it breaking down below the support line of the large Cup or Bowl pattern shown, this line had become unsustainably steep, so that what is now expected to happen is for a "Handle" trading range to form to complement the Cup, which will allow time for the current overbought condition to unwind and for gold to gather the strength to stage a decisive breakout to new dollar highs. In determining how far gold is likely to react short-term to define the lower boundary of the anticipated trading range we should note that it did not break high enough above the October highs for them to provide much support on the way down. It is therefore thought more likely that it will react back to the vicinity of the lower boundary of the steep uptrend channel and its rising 50-day moving average which are currently close to each other. This means that the current reaction is likely to continue to the $890 - $900 area before the price reverses to run back up to the top of the range again in the $1000 - $1050 area where it is likely to stall out again. Note however, that it is now short-term oversold, so we are likely to see a brief rally next week before it drops back to the target area.

It is important not to get too hung up on gold's performance in dollars. On the dollar chart gold's performance does not look that impressive - after all it hasn't even made new highs, but try looking at it against most other currencies and you will quickly realize that it is in a robust bullmarket. The chart for gold in Swiss Francs shown below serves two purposes - it makes it abundantly clear that gold is in a vigorous bullmarket and it makes it obvious why gold has just reacted back, for it had arrived at the upper return line of a major long-term uptrend channel in an unprecedentedly overbought condition, making a reaction almost inevitable. Against the sickly Euro gold even broke out above the top of a similar channel, but this move was a "throwover breakout" marking exhaustion of the intermediate uptrend.

Fundamentally it should that clear that gold's robust bullmarket is set to continue and accelerate, notwithstanding any short to medium-term pause, for the nations of the world are actively ballooning their money supplies at an enormous rate in a desperate effort to stave off the current deflationary implosion, and maintain a competitive advantage by devaluing their currencies. With this kind of broad based dilution going on gold is an obvious magnet for those seeking capital preservation, and its finite supply should result in its price being driven up not just in nominal terms but in real terms too, and once the market perceives that gold is rising in real terms the inflow of funds is likely to ramp up even more, causing the uptrend to accelerate.

The dollar is now at a critical juncture, as we can clearly see on its 1-year chart, for it is in danger of forming a Double Top with its highs of last October - December. While we cannot rule out a surprise breakout to the upside, it is thought to be much more likely that it will turn down shortly, which is certainly suggested by the convergence of the uptrend channel that has developed following the December low. An initial drop by the dollar index back to the support in the 84 area would be expected to coincide with gold advancing back up into the resistance zone towards the highs again.

We sold most of our gold and silver stocks several weeks ago in anticipation of a heavy reaction, which we had bought at the November – December lows, and bought Puts in several big golds before last week's break lower for speculative gains or as insurance, and will be looking to buy back into many of these stocks once the reaction has run its course.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2009 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

robert
02 Mar 09, 12:05
RE: U.S. Dollar Double Top Points to New Gold Bull Run

This guy is consistently wrong. Do the opposite of what is written here and your odds of winning will increase.


TraderJoe
02 Mar 09, 13:11
Clives Gold calls

???

We sold most of our gold and silver stocks several weeks ago in anticipation of a heavy reaction, which we had bought at the November – December lows, and bought Puts in several big golds before last week's break lower for speculative gains or as insurance, and will be looking to buy back into many of these stocks once the reaction has run its course.

Several weeks ago ???

 

8th Feb 2009 - Even if gold does go into reverse soon, either from its current position or after a run at the highs, we should keep in mind that the technical picture and the outlook for gold is very positive indeed, and it would be very odd if it wasn't. With many countries around the world expanding their money supply and dropping interest rates to zero in a desperate attempt to stave off deflationary implosion and maintain competitive advantage, it is the perfect environment for both gold and silver to maintain robust bullmarkets. In addition, with the bankrupt United States heading rapidly in the direction of anarchy and disintegration, the longer-term outlook for both the dollar and US Treasuries is very bleak indeed. Should a run on these commence, as looks inevitable and which will trigger a funding emergency in the US , then gold and silver will go parabolic.

16h Feb 2009 - The long-term outlook for both gold and silver remains excellent, with global currency debasement being highly fashionable, and near zero interest rates thrown in for good measure - no wonder investors are buying physical gold and silver hand-over-fist.

22nd Feb 2009 - What about the fact that gold is already extremely overbought, as highlighted in yesterday's Marketwatch, especially against currencies other than the dollar? - doesn't this mean that there is a high risk of a reversal, which would result in stocks breaking to the downside? Well it does and it could, and normally that is what we would expect soon.

This is why we will hang on to the Put options in big golds that we bought on the site in recent days. However, the present global situation is CATASTROPHIC and we have already arrived at the point where GOLD AND SILVER ARE THE ONLY GAME IN TOWN . Like an idiot throwing water at a chip pan fire, governments and central banks around the world, such as the Federal Reserve are desperately trying to avert disaster by dropping interest rates to zero and creating monopoly money in astronomic quantities to throw at failing banks, institutions and large corporations right, left and center, and in so doing are practicing even more of the incompetence and stupidity that created the mess in the first place.

This video, The Crash of 2009 IS COMING TO YOU should make it clear to even the most complacent and obtuse individuals that the United States is facing financial disaster. The taxpayer will pick up the tab for all of this in the form of a hyperinflationary depression. This is the reason why GOLD IS RISING AGAINST VIRTUALLY ALL CURRENCIES. This is why you can almost forget about what the dollar's doing these days.

 

The impressions of your previous recent articles BEFORE gold fell some $100 were bullish , whereas now your implying you anticipated the break lower ?????


Z
02 Mar 09, 16:21
Re: Gold Movement

Set the technical aside, it's been well known that the central bank has been manipulating the gold price in order to depress it and drive out the buyers time and time again. The sole purpose of that is given that this whole stock market ponzi scheme must continue and run its exhaustive course before the setup of the crash to come. The super elites behind the scene could only benefit from this unprecedented crash and generate firesales for themselves to buy up all national assets including all physical plants, infrustructures and national dime on a dollar under the radar and thus take over the control of different sovereign nations' wealth in a twinkling of an eye..... Sort of economic terrorism....


Nadeem_Walayat
02 Mar 09, 16:45
To Z

I don't see how it can be under the radar as the price falls and values are in our face.

Which gives any small investor the eventual opportunity to buy up stock at cheap prices, my own take is for the dow to trade below 6,000 and gold to go below $850 (which I will be updating this week).


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