Market Wrap

Week Ending 9/18/09

Gold

Gold was up for the week, gaining $1.40, to close at $1007.60 (continuous contract). The daily chart shows gold still positively above its recent breakout. The trend remains in place until such time that it isn't.

Some consolidation is warranted, and perhaps a test of the breakout. RSI is overbought and turning down. All in all the bulk of the evidence is bullish, although waning slightly.

So far, gold seems to be probing the general area of overhead resistance. This week's inverted hammer (candlestick) casts a bit of doubt on the direction of GLD. This candlestick usually foreshadows that a trend reversal MAY be at hand. It needs to be confirmed by subsequent price action. A heads up is warranted.

The weekly chart still shows the inverse head & shoulders formation intact. Price has bumped up into overhead resistance marked by the neckline of the formation. As of yet, price has not broken out on expanding volume, which is imperative. See complete details in the full market wrap for subscribers. This questions an immediate break out to new highs.

On my website this week there was a discussion about golden crosses: what they were and what they meant; so I decided to revisit the topic here.

The chart below was posted months ago, but remains relevant. It shows all of the golden crosses (50dma crosses over/above 200dma) since the inception of the bull market.

A few things to notice: we are still under a positive golden cross from earlier this year, which portends higher prices long term; after EVERY golden cross a significant move up occurred; and lastly, notice that most, but not all of the positive crosses, were preceded by a negative cross (50dma moving below 200dma). These (negative crosses) are marked by the yellow circles.

Now, for some more inter-market relationships; this time between gold and the U.S. dollar. For most of its history, gold and the dollar have moved inversely, or in opposite directions from one another.

If the dollar was up, gold would be down. If gold was up, the dollar would be down. The first chart below shows this inverse relationship intact.

The next chart focuses in on the timeframe from the beginning of this year to about March - the price action is highlighted in yellow. During this time both the dollar and gold rose together.

This event has ended, but the question still lingers: might it happen again? I think it might, but I have no idea when. The future is not predictable.

I think it will take another scare or hit to the financial system to cause such a flight to safety, but that is just an opinion - not fact.

Once again, this is not a sign of stability or strength regarding the monetary system, but one of instability and weakness. Such is the nature of paper fiat debt-money or promises to pay.

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Good Luck. Good Trading. Good Health. And that's a Wrap.

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