With the horns of gold bulls initially setting the tone, then with the claws of the bears chasing prices into the red, we witnessed a classic struggle today.  The US dollar was choppy, jerking gold prices around both sides of even.  The DX reversed course in the morning in what was assuredly technical action.  Indicators on intra-day DX charts had become oversold, the DX then bounced and pressured gold lower.  The dollar remains near four-year lows and is right now the driving force behind gold. 

The Fed is setting us up for another rate slash perhaps as early as next month, and this infers the economy is still ailing and in need of a shot in the arm.  The Fed also appears worried about deflation.  Deflation is simply a persistent decrease in consumer prices that can strangle profit margins and corporate earnings…that in turn results in job losses, lower stock valuations, etc., and of course increases the purchasing power of the native currency.  Inflation and deflation are neither good nor bad, what’s important is that the magnitude of these conditions not be extreme. 

Interest rate policy, the effects of deflation, currency rates, foreign and domestic demand for US assets, consumer confidence, corporate earnings, economic data, deficits, technicals, etc. are all interrelated variables, and day by day are impossible to predict.  Therefore, try to remain focused on the macro picture, and right now that picture reveals the US dollar in a downtrend and gold in an uptrend.  One might look for corrections in this relationship as an opening to establish trades.  I would also encourage traders to overlay a gold and dollar index chart to visualize the seemingly 100% inverse relationship between the two markets over the last couple of months

Bearish sentiment regarding the economy and the dollar has lifted gold over the last few weeks, but as we mentioned just yesterday, “don't expect the dollar to just roll over and capitulate each day, look for bounces in the dollar to pressure gold lower, and those occasions might offer good buying opportunities in gold”, and sure enough we saw a micro example of that in today’s session.  Prices remain above moving averages but technicals are in overbought territory, perhaps prices are top-heavy for the moment and due to correct.  If long with TradeScope, be sure to follow along and keep stops tight.  Our target of 347 as a near-term high was missed by a couple of bucks, now one should be prepared for a pullback with the first support level near 338.  Remember, with futures and options one can be short or long, feel free to contact me to discuss trading strategies.  Each contract/option = 100 ounces, a $1 move in a futures contract = $100.

To open an account and receive trading recommendations on gold futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com.  Visit www.altavest.com to request a Free Starter Kit.  Keep in mind that there is risk of loss in all trading.
 
July Silver:  Close = 474.2, -5.8-cents

This week we reached a peak last seen in early February.  Today it appears the bulls couldn’t stand all those profits burning a hole in their pockets and they took some money off the table.  Of course, the catalyst behind the selling today was action in the US dollar, with silver then mostly mirroring the subsequent action in gold.  Yesterday we referenced that “prices could be hitting congestion in the 481 area, 462 is the next support level.  There is also bearish divergence on some technicals and odds may favor a correction this week” and it now appears to have happened sooner than later.  Look for 468 as the next support level, but mostly look for silver to ape gold.  Each contract/option = 5,000 ounces, a 1-cent move in a futures contract = $50.  Contact me anytime to discuss strategies to fit your needs.

To open an account and receive trading recommendations on silver futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com.  Visit www.altavest.com to request a Free Starter Kit.  Keep in mind that there is risk of loss in all trading.

-- Posted Wednesday, 7 May 2003 | Digg This Article