Last week, and coming into this week we said the story in gold/silver v the US dollar would be a key marker. Thus far we have no resolution and with so little energy / volume in the markets - one should not expect any more clarity until the new year.
Let's check in on the updated charts. First the US dollar (again, this chart is delayed by 1 day but the Dollar Index is currently just over $78, so a bit higher than yesterday's close). Recall we sold our UUP (dollar ETF) options (bought just before Thanksgiving) on that first run into the 200 day moving average to lock in just under 30% gains; which in retrospect was the perfect play. As we said then, we are more than happy to rebuy our long dollar exposure but this time around we want to see the dollar index clear resistance - in this case the 200 day moving average (i.e. over $78.50) - this looks like it could happen.
[click to enlarge]
Next gold*, and silver* which we said last week were dead cat bouncing (apparently a term the gold bugs on Seeking Alpha took great exception to!). But as you can clearly see, after the first big selloff, the cursory oversold bounce took place - right into resistance (20, 50 day moving averages) - and then a new selloff has begun.
Until proven otherwise, the precious metal charts strike me as not bullish, and I could see more downside developing from here. Silver is actually back to recent lows so it is either about to form a double bottom from which it will begin a new run back up, or break to new intermediate lows - my guess would be the latter. I will stick with my comments from last week until the charts prove me wrong:
I'd expect dead cat bounces in both metals perhaps next week (inversely, the dollar is due for a rest/consolidation at some point), but both have broken their 50 day moving averages, so until proven otherwise I'd expect them to pull back over the intermediate term, rebuild a new base, and then when the dollar weakens again, start a new move up. But that won't be a 2009 event. For now, time is money and the tide has turned. If you believe in the absolute correlation between the dollar and precious metals, this type of break down in the metals should bode well for the dollar in the near term as well
*for graphical purposes I am using the Gold (GLD) and Silver (SLV) ETFs rather than the actual metal pricing as they are good mirrors, and are updated with 20 minute delay on the charts.
Long [very small amounts] of Ultra Silver, Powershares DB Gold Double Long in fund; no personal position