-- Posted Tuesday, 8 January 2013 | | Disqus
The U.S. dollar showed its first sign of life in nearly a month last week when it rallied above some distinctive price peaks on the daily chart. The trend bears watching, since any significant upside progress from here would put pressure on gold and silver quotes. How likely is this to occur? The chart below leaves the matter unsettled, at least for now. Traditional chartists will see a bearish head-and-shoulders formation in the making. If it pans out in textbook fashion, that would of course be bullish for precious metals. We think this is the least likely of several scenarios for two reasons: 1) head-and-shoulders patterns are everywhere we want to find them, too popular for their own good; and, 2) this particular one looks too fetching to do what we expect it to do.
More likely, in our opinion, is a prolonged slog higher for the dollar over the next 6-8 weeks, with a modest upward slope that hugs the dotted red trendline. This would be congruent with a forecast we aired a couple of months ago calling for range-trading in gold from around $1480 to $1800 between now and early 2014.
Most Bullish for USD
Which brings us to the scenario most bullish for the dollar, and therefore least bullish for precious metals. According to our Hidden Pivot Method of analysis, sustainable rallies nearly always begin with an upthrust exceeding two prior peaks, an “internal” and an “external.” In the chart above, these peaks are labeled, respectively, #1 and #2. However, more than merely exceeding both highs, the rally would have to do so without pulling back significantly after the first high is surpassed. Another way of saying it is that if bulls can get past peak #1, they must top #2 as well without pausing for breath. Were this to occur, you could kiss the head-and-shoulders pattern good-bye, and with it the prospect of a strong uptrend in bullion prices for perhaps another month or two.
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-- Posted Tuesday, 8 January 2013 | Digg This Article
| Source: GoldSeek.com
