If I could get away with not referencing the US dollar in relation to gold, I would, as I too am tiring of such a predictable relationship.  But whether we like it or not, gold is denominated in US dollars, and is heavily influenced by the fortunes of the greenback.  Today, on the heels of a dollar index contract that slid to fresh four-year lows again, the yellow metal jumped to a two-month high.  The dollar remains in a downtrend, with a multitude of factors keeping it on the defensive.

A lousy job market, government deficits, poor consumer confidence, sloppy equity markets, tax and budget battles, the cost of war, a continued threat of terrorism and reduced foreign investment, have all contributed to the weakness in the economy and the dollar.  Also, the presumption is that the Fed could lower rates in an attempt to shock the economy from its coma, and that could devalue the dollar further. 

Recall how we mentioned last week, “However, a weaker dollar isn’t necessarily a black spot on the economic picture, as at some point exports and trade will be positively stimulated.”  Well, this weekend Treasury Secretary John Snow echoed those thoughts by suggesting US exports were increasing as a result of the recent devaluation.  As anticipated, he and the Bush administration are likely not concerned about the recent devaluation of the dollar and one can therefore assume that intervention isn’t anywhere in their sights.  This isn’t to predict the dollar will sink each day, but it does infer that a bit more weakness in the dollar isn’t likely to alarm anyone in the Bush administration.

On a bit of a political note, what are your thoughts on across the board tax reductions?  President Bush is going to try and “sell” his proposals to the American people this week.  If he gets the tax reform he’s seeking will this be a stimulus to the dollar and the economy, and will gold subsequently fizzle out?  Or, if citizens are allowed to keep more of their earnings, will that stifle the economy and DX further and allow gold an opportunity to continue higher?

Prices are well above moving averages but technicals are getting increasingly overbought, with slow stochastics over the 90 area.  Prices are top-heavy and in most such cases, odds would suggest we’re due for a pullback.  However, indicators are not foolproof as overbought/sold conditions can persist and prices can continue to advance/decline.  Quick moves such as we saw last week always seem completely unpredictable, but one should always anticipate unpredictability.  Always have open orders in place to remove clouded emotion from the equation.  If long with TradeScope, keep your stops fairly close behind prices.  If long, don’t rest on your laurels, pull some profits off the table, prepare for a swing lower and get ready to add at better prices.  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 = 480.7, +7.2-cents

The week started out with a bang, with silver spiking to a three-month high.  The latest Refco research regarding the World Silver Survey 2003 might be of interest to some of you.  They have concluded that silver is likely going to remain in a wide range through the remainder of the year.  Of course it doesn’t take much courage or brains to profess such an innocuous outlook, but that’s the way they see it, and I’d have to agree.  I won’t go into all the details here, but let me know if you want a copy of this research.  Anyway, silver has rallied alongside gold, all thanks to a weaker dollar.  Look for 468 as the next support level and 484 as resistance.  Volume and open interest are diverging a bit and are not offering any directional clues.  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 Monday, 12 May 2003 | Digg This Article