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Gold and Silver Still Dollar Dependent

$USD Index

Despite the troubles in the Middle East and its ramifications for oil prices the real driving force behind both silver and gold prices is still the US Dollar. The inverse relationship remains intact and as the dollar tries once again to get some traction, gold and silver prices are capped. This raises the question of just why is the dollar popular at the moment, well, as we see it the downgrading of Spain's debt has cast another shadow over the stability of the Euro. When the Euro dithers and sags, the dollar becomes a beneficiary for those looking elsewhere to place their cash. The stay of execution for the dollar arrives in the nick of time as it flirts dangerously close to the '76′ level as depicted on the above chart.

Oil prices appear to be softening as WTI eases back towards the $100.00/bbl level thus lessening the pressure on inflation and supposedly lessening the need to hold gold.

The USD has managed to bounce at the '76′ level, for now, however, both the 50mda and the 200dma are forming a steeper curve as they head south. The technical indicators are climbing out of the oversold zone, with the RSI, MACD and the STO all heading north. A short term rally could be on the cards but we doubt that it will have the legs to make any real progress.


A quick look at gold shows a recent new all time high which bodes well for gold prices despite the pullback. The 50dma and the 200dma are moving up in support of gold prices, with the RSI, MACD and the STO having peaked and turned negative for now. In the short term we must expect the unexpected with severe oscillations in both directions, however, longer term this bull market is intact and heading for much higher ground.


Physical silver continues to be difficult to obtain and has led to silver prices being chased ever higher. We may see some sideways consolidation here, however, its a tiny market and could rocket at any given time as both the industrial and investment demand increases. The technical indicators are on the ceiling at the moment suggesting a breather, but don't count on it, they can stay that way for prolonged periods of time.

In conclusion we would suggest that a core position is held regardless of what day to day, or week to week events arrive to rattle everyone's cage. Keep some metal in your own hands and certainly outwith the banking system, the troubles that we see on our screens today could be ours tomorrow. When choosing stocks go for the quality producers as many of the names you see today will not make a cent in this bull market. Finally, if you have the stomach for it and are comfortable with the inherent risks involved, a few well thought out option trades could boost your portfolios performance, but keep it low level.

Thanks for your time.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)


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