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October 11, 2009

Pressure on Gold
by Mike Paulenoff

As of this moment the Market Vectors Gold Miners ETF (NYSE: GDX) is warning me that the upleg from the October 2 low at 42.28 to Thursday's new high at 49.52 ended "something" on the upside. My sense is that more than just the most recent upleg likely ended, which means that the upleg off of the July pivot low at 34.05 also ended at 49.52 on Thursday. If my work proves accurate, then Friday's weakness initiates a decline that has an immediate target in the 45.00-44.60 area, followed by 41.40 to 40.50 thereafter.

Let's realize that the possible peak in the GDX is occurring at the same time the "Talking Heads" are beginning to jawbone the dollar higher, which we should not think is a mere coincidence. Time to be careful in gold and gold mining names.

All I can say is that when you have Geitner, Summers, AND Bernanke all chiming in with comments about the need for a strong dollar, smart money listens - and dumb money had better be prepared for some wicked volatility (against their short position). In the extremely interventionist world in which we find ourselves, my sense is that you really need to reevaluate a short dollar position when the three highest US financial market officials are telling you that they don't like your attitude. In any case, let's notice that since my last posting of this chart earlier today, gold prices have down-ticked a bit, while the DXY (cash dollar index) has climbed to 76.50 from 76.00. On a Friday ahead of a weekend when the central banks could intervene Sunday night, I will not be surprised to see the DXY and its ETF the PowerShares DB US Dollar Index (NYSE: UUP) continue higher, which could put some intense pressure on gold prices and the SPDR Gold Shares (NYSE: GLD). Be careful out there!

Mike Paulenoff
www.mptrader.com

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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