Published by Institutional Advisors Thursday, November 27, 2008.
Technical observations of RossClark@shaw.ca
US Dollar, Euro, Commodities & Precious Metals
Many pieces of the investment puzzle appear to be coming together in a manner that should allow for a recovery from the current overextended conditions.
Currencies: The US Dollar is rolling over. After generating upside exhaustion readings in the last two weeks of October it was followed by a bearish divergence and sell signal in the MACD and now a break below the 20-day moving average. The reciprocal action is evident in the Euro. We anticipate corrections back to the 20-week exponential moving averages (USD ~ 81.50, EU ~ 137).
Commodities: The broad commodity indices continued to remain in oversold conditions for the third consecutive week as of November 21st. A move above last week's high should result in a test of the 20-week simple moving average within six weeks. The DBC and GSG Exchange Traded Funds provide a means of participating in the move.
Precious Metals: In the past few days silver has kept paced with gold on the upside (which is good sign of liquidity returning to a wide range of markets). If there is a continuation of this trend with the Silver/Gold ratio taking out the early November highs it will increase the probability of favourable markets well into the first quarter. Similarly, if the XAU/Gold and HUI/Gold ratios can close above 0.123 and 0.30 respectively it will be a confirmation of a developing uptrend.
On a short term basis, the November rally has retraced 60% of the October decline and prices are sitting just below the midpoint of the September rally. This is a normal spot at which to find resistance.
In years such as this where the gold price was below a downtrending 200-day moving average a price high was usually generated in the last week of November and was followed by a break into December, bottoming between the 6th and 13th and coupled with an RSI(14) below 35. Look for this as an optimum buying opportunity.
In the bigger picture, a decline to $645 was allowable (retracing 50% of the bull market from 2001), but into October's liquidation the worst was only $681. For well funded gold producers the key factor is that the deflated price of gold is holding well and is favourable for their operations.
The opinions in this report are solely those of the author. The information herein was obtained from various sources; however we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.
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