Its time to dust off our Gold playbook again, while keeping a close eye on the US Dollar.
ABX – Daily, a horrible chart but less horrible than many gold charts. Note price has hovered under resistance for two weeks now without breaking down further, while quite a few large and small Gold producers have revisited the February lows.
ABX – weekly, having made new multi-year highs has pulled back – a little farther than we’d ordinarily like to see if this trend is to continue, but then Gold is at the mercy of the US Dollar more than any other factor, so we have to accomodate our thinking some what to this reality. Of primary concern are the three mountaintops leading into 2004—we frequently see three distinct rally phases prior to the end of a longer term trend. More on this later.
FCX – weekly, a situation not unlike ABX. where price over the long run has remained solidly under resistance set last year.
Gold Indexes
S&P Toronto Gold Index
HUI Gold Bugs Index
The indexes themselves paint an even more sobering picture. It may be that the best longer term gold investors can do now is pick stocks that lose less rather than gain – there are very clearly some dogs within the indexes.
US Dollar
As fears of inflation superceded fears of a burgeoning trade deficit and current account balance, the dollar found friends at home and abroad betting on a faster-than-expected rate of interest rate increases in 2005. Clearly this has not been good news for Gold – from the moment the Federal Open Market Committee changed their tune, albeit ever so slightly, Gold was put under significant pressure. Until the fear inflation takes a back seat to other, more unsettling, concerns, Gold isn’t likely to do much for long-only investors.
It is however time to at least be prepared to exploit a surprise in dollar/gold trade. This week investors will get fresh insight into the state of the economy, international trade, and inflation starting with Tuesday’s International Trade report and release of the last FOMC meeting minutes. And looking at the chart, it seems that other forex traders agree, as the US Dollar dances on the line between support and resistance:
Following the parabolic drop in the Greenback over the back half of 2004, the dollar has continued to trade in the lower half of the range established by that significant decline. Last week, price pulled back below resistance – shown here off the rising wedge.
Knowing that the ultimate target of a broken wedge is the base of the wedge itself, there’s reason enough to consider exploiting dollar weakness either in forex or via Gold. Of course, if need be we can take the other side of the trade and short Gold and be long the Dollar if the data so suggests.
We merely need a catalyst for action, perhaps coming up this week…
05.04.10 20:35 #