Dollar, Gold and Silver

By: Sol Palha | Tue, Apr 20, 2010
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"A man who has committed a mistake and doesn't correct it is committing another mistake." - Confucius, BC 551-479, Chinese Ethical Teacher, Philosopher

The dollar as expected has mounted a very strong rally, and it just missed its target of closing above 82 on a monthly basis by a few points. It did, however close above 81 on a monthly basis which indicates that it is going to trade higher before a top is in place. As long as it does not close below 78.00 on a weekly basis, the odds of it trading to the 85-86 ranges are rather high. If it manages to close above 82 on a monthly basis, it would move the final targets to the 90-92 ranges. While a lot of noise is being made about the Aid package that the EU members have in place for Greece, the Euro is still not out of the red zone as many members are still facing huge budget shortfalls. Potentially Spain, Portugal or Italy could find themselves in the same place Greece is now in.

Despite the strength in the dollar, the commodity's sector has held up remarkably well and this suggests that the smart money is deploying new funds every time this entire sector pulls back. It also a very ominous warning that inflationary forces are going to unleash with a fury in the years to come. We still believe that individuals all over the world, especially in the developed countries are going to experience a shock in the next 2-3 years. We have spoken of this many times in the past 12 months. The economic pain right now is being masked by the gains in the stock market.

Interest rates are slowly rising and the long term charts are indicating that they have nowhere to go but up. We also believe that the bond market is going to experience a crash as rates soar to eventually match those of the 1980's. For those who have no positions in bullion, use pull backs to establish a position and use strong pull backs to add to your position.

Under normal circumstances Gold would have mounted a stunning correction given that the dollar has mounted a very strong rally over the past few months. This is not the case this time around and Gold has only mounted a mediocre correction and now appears to be putting higher lows instead of lower lows in the face of a strong dollar. A weekly close above $1175 will most likely result in a test of the old highs. A test of the old highs if not confirmed by our technical indicators could then result in a rapid move down to the 990-1040 ranges.

Gold is still expected to consolidate for a few more months. If the consolidation remains in a tight range (1000-1200), then expect Gold to explode upwards once a new weekly buy is generated.

Traders, who want to take advantage of a dollar rally, can use pull backs in the dollar to establish positions In UUP. Consequently, they can also short the Euro via EUO; use rallies in the Euro to open up positions in EUO. For those who want to use ETF's to play the precious metal's sector, the following ETF's should be considered PALL, SLV, and GLD.

"It doesn't work to leap a twenty-foot chasm in two ten-foot jumps." - American proverb

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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