The $USD and Impact on Gold
posted Apr 13, 2004 at 11:21PM
Well the path for a test to the 200 dma seems quite clear, although a close above 90 would really cement it. For now I am going on the assumption that the USD will get to the 91 level and a bit more.
What about after that?
The usual scenario is that the 200 dma will hold and this will coincide with a similar test of the the gold indexes. A lot of Elliot Wave Counts see both in wave 4 counter-trend rallies.
Buying gold when it is at or at a discount to its 200dma has been the proper thing to do over the last three years. the trouble is...everyone knows that...so maybe some caution is in order?
All other times one could be very confident that Greenspan would not raise rates...and that is different now as a lot of players are of the mind that recent economic reports give Greesnspan the room he needs to do that.
Of course it is not just raising rates, but the context of rasing rates. Raising rates because he is reacting to an inflation problem that is out of control is good for gold. Rasing rates to pre-empt inflation due to a recovering economy is another.
Are inflation numbers bogus? Sure..but for now the market doesn't care.
As well the COT is coming off historically high levels of speculative involvement, so their is lots of fuel if things go sour for gold.
Again with the CRB and speculative fervour in a lot of related markets at fevered highs there is lots of ammo for significant downside. Some goldbugs think when real estate bubbles bust this will be good for gold. I would not bet on it...especially if it pops in China before California. The environment in China is similar to that which preceded the Asian Crisis in the 90's. A real estate bust always drives up the value of cash as well cut demand for building materials
Looking at gold boards, not a scientific analysis here, but there appears to be no real fear yet...a lot of exhortation of this being a "buying opportunity"...I am of the mind when some of the perma-bull newswriters are being pillaried that a more tradable bottom will be at hand.
So the 200 dma may provide for short term trading opportunities...I would wait for positive closes above (coming from below)...if there is another blow off upleg then one needn't hit the exact bottom as there will be some good stocks that will lag the indexes.
I think caution is warranted as it is possible that correction covering market action of the past three years may be underway. As well some people who have been on the right side of this market, Maclellan, Kerns, Moriarity(321gold) have been calling for significant tops in gold.