Gold and silver prices have taken off strongly this week. Readers may recall my blog from last Wednesday when we sold our long position in gold:
"...we are in a general reversal zone for all markets and there is a good chance of a sharp correction here. If we do get a correction to $1240 - $1250, we will look to buy again as the overall trend of this market is still potentially very bullish (assuming a new cycle started on July 10 at $1205). Some traders may wonder why I don't just hold my long position here and "ride out" the correction to that $1240 - $1250 area. The reason is that there is still a small chance we are in an older cycle that could form a bottom below that $1205 low over the next few weeks. Any move below $1240 would support that idea."
Well, we did get a significant correction, but today's price surge is making an argument against an older cycle. Unfortunately, prices did not move into our target area before rallying so we did not get an opportunity to buy back our long positions. Could today's surge be a "flash in the pan" in this highly volatile market? Maybe. Today gold made a new weekly high but silver did not for a possible case of intermarket bearish divergence. So prices could turn back down. If gold moves and closes above $1285, however, things could turn very bullish.
The U.S. Dollar Index is at a critical juncture right now, and the dollar's fate could influence the direction of the precious metals. On Aug. 3, the dollar made a low at 92.70 which was in a critical support area. This was also within a strong reversal zone for currencies so that could be a significant bottom. The dollar has been rallying strongly from there, but there is a very strong resistance line around 94 in the U.S. Dollar Index chart. If the greenback cannot start closing above 94 soon, it could easily fall back to test the critical support area between 92 - 93 again. (If that breaks, the dollar is in danger of "free fall"). A sudden "breakout" of the dollar (above 94) would likely push the precious metals back down, but if that resistance at 94 turns the dollar back down, we could see gold and silver prices take off.
We are currently on the sidelines of both metals.