Wednesday, January 20, 2010

As A Corollary To A Higher Dollar....GLD, GDX, SLV

As a corollary to a higher Dollar, it is my expectation that precious metals will be under pressure.

For example, I have had a sell signal on the SPDR Gold Trust (symbol: GLD) since January 11, 2010. Gold still remains in a secular bull market, but on the weekly time frame that I function on, technical studies suggest an opportunity to buy at lower prices. GLD should test the $104 to $105 area, which are the lows of the negative divergence bar on the monthly chart.

If gold will be weak, then the Market Vectors Gold Miners ETF (symbol: GDX) will be under pressure as well. See figure 1 a weekly chart of GDX. The head and shoulders top is identified and this week's price action is breaking below the neck line of this price pattern. In the context of a higher Dollar, I would expect lower prices from this volatile issue.

Figure 1. GDX/ weekly

The i-Shares Silver Trust (symbol: SLV) looks "less" bad than GLD or GDX, but with a higher Dollar, there will be downside pressure. See figure 2 a weekly chart of SLV. The cluster of negative divergence bars implies a trading range. Support is at $17.

Figure 2. SLV/ weekly

1 comment:

Dave Narby said...

Guy, as always, excellent analysis.

I have been feeling there needs to be another round of deflation to scare people back into the USD and treasuries.

It looks like Dubai, Greece, Spain, Portugal, California, Illinois, New Jersey and... Japan(!) are going to kick it off this time (and Dubai is back on this list, as it looks like they got half as much of a loan from the Emeriate and the problem might be twice as bad as first revealed).

I think that the resulting pullback will likely present a last stop on the precious metals bull market train.

If it doesn't, and there's deflation severe enough to cause a deeper pullback in PMs, I may go nearly all-in...