The U.S. Dollar, Gold, and Silver

By: Robert McHugh | Sun, Aug 7, 2005
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The U.S. Dollar broke down from its Rising Bearish Wedge pattern, which raises the probability that the A-B-C wave (2) upward correction is over. Confirmation that wave (3) down has begun would come from a decisive drop below the bottom boundary of the Wedge, below 88. The first downside target would be the point where the Rising Wedge began, around 81.5. That could be an orderly stopping point for the first leg of (3) down, Intermediate degree 1. Eventually, wave (3) should take the Dollar at least into the 60s. That implies a Dollar devaluation event of some sort. Or, a lot less buying from foreign Central Banks, especially now that China is pegging the Yuan to a basket of currencies, not just the U.S. Dollar. Momentum is down as the MACD drops from a level where the prior two tops occurred. The RSI is neutral.

The above chart shows the pattern for Gold. Gold has reached the upper boundary of the Symmetrical Triangle pattern. It would be natural for resistance to hit here, but once Gold breaks above that boundary - and the Symmetrical Triangle pattern suggests it will - Gold is clear to rally into the high 400s. The upper boundary of its long-term trend channel is above 500. Once Minor and Intermediate waves five of primary (1) complete, an A-B-C correction lower is probable. How low that correction takes Gold will depend upon how high it rallies over the next several weeks and months. If it were to correct now, a 38.2 percent retrace would target 375ish.

The next chart shows Silver, which was down this week, however the Elliott Wave count as labeled still suggests an upward thrust is near. As long as Minor degree wave 2 down of the five-wave impulse we expect for wave 5 of (1) up does not drop below the bottom of e, the above count remains valid. There is also a Symmetrical Triangle pattern that is a continuation pattern of the prior trend. A decline decisively below 6.90 would cause this pattern, and the Elliott Wave count, to fall apart.

It is very rare for a Symmetrical Triangle pattern to fail. It is a continuation pattern that suggests the direction of prices before the pattern will be the same as after - in this case up. Should Silver drop decisively below its moving average lines and the bottom boundary of the Triangle pattern, we will turn Bearish, and consider wave (2) down's correction is underway.

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Who, although He existed in the form of God,
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Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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