The main purpose of tonight's post is to analyze the current situation with gold and silver as last week's downturn in both metals is putting into question the holding of our long positions. A major contributing factor to the metals falling last week was the sudden upsurge in the U.S. Dollar. As I mentioned in a blog two weeks ago, there is a very strong support level for the U.S. Dollar Index around 78-79. The dollar had been plummeting down since early July and it finally arrived at that support on Oct. 25, so it is not surprising to see a bounce and upward rally here. After a steep rise over the last seven days, however, the dollar is now overbought and approaching resistance towards 81. The dollar's directional momentum is presently mixed bullish and bearish so a likely scenario at the moment would be to see the dollar remain rangebound for a while between the support around 78-79 and resistance near 81. I want to point out here that any rallies now in the U.S. dollar will likely be short-term or medium-term as the long-term (several years out) technical picture of the dollar is quite bearish.
Gold prices are remaining above $1300 (and support extends a little below this level) but they need to start moving above $1330 again to maintain the short-term bullish picture. Silver has moved undesirably below the round number support of $22 but seems to be clinging just beneath it. Right now we are starting new short-term cycles in both of these metals and this is usually bullish, but if last week's correction continues down this week, there could be a risk of the cycle turning bearish and gold moving back down to the $1150-1200 area. Note that I am doing short-term trading here. Very long-term traders can start accumulating gold on any dips in price that stay above $1100 as the imminent long-term rally in precious metals can be expected to propel prices to much higher levels. Aside from market manipulation of gold prices, the only other major threat right now to precious metals would be the sudden appearance of fiscal responsibility in the U.S. government. I leave it to the blog reader to decide the likelihood of that happening. Several financial analysts that I follow are presently maintaining their short-term bullish positions in gold and silver with tight stop losses, so I am following suit while keeping a watchful eye on short-term technical signals next week. Maintaining long positions in gold and silver.
I am still standing aside the broad stock market until directional signals are less ambiguous.
Last week crude oil broke below the baseline it had established at $96 and directional momentum is now 100% bearish. Cycle studies indicate that there may be a short-term bounce in crude prices over the next week or two, and if so, I will look for an entry point to sell this market short as long as momentum remains bearish. Still out of this market.