Week Ending 3/5/10
All eyes remain on Greece's sovereign debt problems and the EU's response thereto. So far, most EU officials have suggested they would back Greece up if push comes to shove. Germany, however, refuses to provide any funds to help reduce Greece's debt obligations.
To make matters worse, European Central Bank President Jean-Claude Trichet made a public announcement that Greece should refrain from going to the International Money Fund (IMF) for help (loans).
Be that as it may, the euro was up slightly for the week, as was the dollar, yet gold rose 1.49%. It appears that investors are starting to realize that gold is the strongest currency in a world drowning in a sea of paper money and promises to pay. Investors around the globe are realizing that Greece is not the only cockroach in the house: Italy, Spain, Portugal, and Great Britain are nearly in the same boat; and the U.S. is not far behind. The market is starting to understand that the piper must eventually be paid; and just like Charon of the underworld - he only takes gold coin.
For weeks now, the dollar and the euro have been calling the shots for the rest of the markets. Finally the euro has begun to rally, although the dollar remains stubborn, giving little ground to the downside.
If and when the dollar breaks, the other markets should respond positively, especially the precious metals.
The daily euro chart shows the first Fib level as the upside target. MACD is under a positive crossover and histograms have turned positive. Now, RSI needs to turn up and break through the 50 zone.
Due to Greece's debt problems, the euro has taken a tremendous fall from grace; and subsequently the dollar has been held up at overbought levels that would usually not obtain. The daily chart shows the broadening top that has yet to break down significantly.
Notice the falling flag formation. Usually, but not always, such formations are resolved to the upside. If the dollar breaks out above the flag, it will be negative for commodities in general, and gold and silver specifically.
It is possible that the dollar breaks out and then retreats, forming a false break out. Or, it may break below the flag formation and enter upon a more significant decline. I give more probability to the latter scenarios than the first (breaking out above and continuing on higher without a correction). I do expect more upside to the dollar - AFTER a correction to alleviate its overbought condition. The downside target is 23.2.
MACD has made a negative crossover and the histograms have turned down as well, however, the dollar has remained resilient to a hard fall, at least thus far.
The weekly chart shows STO in overbought territory and starting to roll over and turn down. Price is presently sitting right at its first Fibonacci retracement level (38%). This is a logical place for a pullback to occur.
CCI at the bottom of the chart is receding back towards 100. A cross below 100 would signal a more meaningful correction is underway. Support is indicated by the red horizontal support line near 78.
If the dollar does fall from here, it will support commodities, especially gold and silver. Such action could prove to be short-lived, however, as the dollar appears to have unfinished business to the upside.
Gold had a good week, considering that the dollar held steady. Gold added $16.70 to close at $1134.30 for a gain of 1.49%. For the last few weeks, gold has advanced in the face of the dollar, which makes one wonder what would happen if the dollar falls. I suspect gold would take off and challenge its recent highs.
The daily chart shows gold's recent breakout and its continued rise. Notice that a 20/50 moving average crossover is setting up and about to occur. This would be a bullish signal. Watch CCI levels at the bottom of the chart. A move below 100 would be a negative signal if it holds.
Up next is another daily chart that shows a bit of a different perspective: a right angled ascending triangle has formed; and an inverse head & shoulders formation that is not text-book perfect - nonetheless, the main ingredients are there. This bears watching. Either formation suggests an upside target of 1250 if resistance is broken through and price holds the breakout.
Silver performed better than gold did for the week, gaining 5.41% to close at 17.35. Price is bumping into overhead resistance offered by its 62% Fib retracement level. A move above this level would be a bullish development if it holds.
MACD is in positive shape. Watch CCI for a move below 100. That would signal the rally has fizzled. The dotted vertical lines indicate similar moves and subsequent corrections.
Platinum has been performing well and added 2.55% for the week to close at 1579.10. The daily chart shows a right angled ascending triangle forming. A break above upper horizontal resistance would be very bullish, not only for platinum, but for the rest of the precious metals as well.
MACD is under a positive crossover and CCI is well into positive territory (essentially overbought). A move below the 100 CCI level would be negative. Stillwater Mining (SWC), a major platinum producer, has been performing well in the portfolio, gaining almost 40% the past month.
Gold stocks had an excellent week, adding 5.79% to close at 46.43, as represented by the GDX. Last week's report stated: The GDX index shows a possible set-up for a 13/34 moving average crossover, which would be a short term buy signal if it occurs and holds. The crossover occurred and the GDX index gained almost 6%. This is why we increased our gold stock allocation two weeks ago.
The weekly chart shows a set-up for a possible 20/50 day moving average crossover. This would be an even more bullish signal if it occurs.
RSI has turned up through 50, and MACD is curling up for a possible crossover and the histograms are receding towards zero. STO has already made a positive cross and move above 20. The chart shows potential.
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