The Dollar Index broke through resistance at 80.00, signaling a primary advance to 85.00. Rising 63-day Twiggs Momentum indicates a strong up-trend.
* Target calculation: 80 + ( 80 – 75 ) = 85
The stronger dollar caused spot gold to weaken, testing the band of support between $1550 and $1600/ounce.
Gold is also testing the lower trend channel on the weekly chart. Cross of 63-day Twiggs Momentum below zero warns of a trend reversal. Failure of support at $1550 would confirm a primary down-trend.
* Target calculation: 1600 – ( 1800 – 1600 ) = 1400
CRB Commodities Index is similarly testing support at 292. Breakout would offer a target of 265*.
* Target calculation: 295 – ( 325 – 295 ) = 265
Brent Crude is testing medium-term support at $105/barrel. Failure would indicate a test of the lower trend channel.
Some readers questioned why gold and stocks are falling simultaneously — one normally rises when the other falls. A possible explanation is that expectation of quantitative easing, both from the Fed and ECB, has been supporting both markets. As prospects of QE recede, inflation forecasts will be lowered and demand for inflation-hedge assets (stocks and commodities) will fade. We should see a corresponding rise in bond prices (and falling yields) as a result.
Reality is different from your analysis in my opinion :
1/ It is not the Dollar that strengthens, it is the Euro that weakens, relative to all other currencies. Nothing special is happening with the Dollar
2/ WHY IS THAT ? Easy : Europe is entering into full crisis, as France’s AAA rating is soon going to be lost. Now it is not only Greece/Portugal/Ireland/Spain/Italy (a minority of the Euro Zone) , but with France a majority of the Euro zone that is in crisis mode
3/ As a consequence, Europe is entering a deflationary period (it was already the case for PIIGS), and probably the rest of the world is going to follow (Europe is the largest economy in the world, and has the largest influence economically in the world today).
4/ Deflation means positive real returns (interest rate – inflation), as interest rates cannot be negative, while they were negative recenlty
5/ When real returns sharply increase like this automatically GOLD weakens. This is and has always the basis for the Gold price anyway, as Gold is mainly an invesment rather than a commodity
Hope this clarifies the situation
Thank you for your viewpoint:
technical analysis almost never fail so it was a question of time to see that happen. Point and figure charts are the best method to see the battle between demand and supply and now we have seen a sell signal @ 1.3100 in the long term boxsize in the EUR/USD currency pair. Point and figure charts never lie and they where a true trading companion for me for years. Our current economy system is out of style and not only in europe. But if we can break the chains of our obsolete system we can reach a new state of just sustainable green economy for all the planet.
Nice charts mate. Adding you to my blogroll.
Hi Colin,
The reason gold and stocks are falling together is because of the US dollar. The dollar now moves in the opposite direction to almost all asset classes. This is the reverse action from the 1980s and 1990s. Traders only want to hold the dollar during times of concern and worry. For example, during this current bear market, traders are shifting their assets out of risk (stocks and commodities) and into defensive assets (US$ and bonds). This increases the value of the dollar. A rising American currency is particularly negative for gold. This advance in the dollar should continue as long as the global bear market persists. However, gold can drop down to $1300-$1400 and still be in a long term rise. 2008 was a good example of the affects of risk aversion (running to the US$) and the price of gold. The metal dropped 30% or $300 and it was not until the bear market was finished (March 2009) that gold continued its advance. Our models point to gold at $1550 in Q2 and the dollar at $0.88.
People are selling gold to raise cash to. A trader will sell any profitable trade to raise cash. Better to have money to trade another day or month than get a margin call and have to look for another job.
Governments might be selling to
Hi
I was refered to your website today…fantastic. I would like to trade the downward trend of gold but need a broker who will watch, recomend buy/sells on metals in Australia…do you recommend anyone
regards
r mitchell