The rising USD in December and January has pulled gold downward and pinned it below the $635 - $640 resistance level. But this scenario has now changed. The recent advance of the Dollar has peaked at $0.844 and is started to decline. This is the stimulus needed for gold to go higher. After several months of resting above the $600 key support level, gold has now started moving toward its new target of $695 by early April. In the lower portion of Chart 1, the 14 week trading cycle for gold is nearing a trough and soon will be rising for February and March. This upward pressure will move gold towards its target price.
In Chart 2, the large nine month consolidation of the Gold Bugs Index (HUI) appears to be nearing an end. The HUI has been trading between 290- 350. Recent weak gold prices have pulled the index down to the support level of 300 during late 2006.
In the lower portion of Chart 2, the main trading cycle has bottomed and begun to rise in late January. The crest is expected by the second half of March. The price target for the HUI during this coming cycle is 400.
The TSX Gold Index, like the Gold Bugs Index, is also completing a lengthy consolidation phase in late January. Its main trading cycle (lower portion of Chart 3) will be anticipated to climb higher for the next two months. This market action should drive the TSX Gold Index up to the old May 2006 high of 380.
3rd chartMY CONCLUSION
Due to the anticipated weakness in the U.S. Dollar, gold is expected to rise. Technically, the next 6-8 weeks should be beneficial to precious metal stocks and spot gold and silver.
January 25, 2007
Your comments are always welcomed.
Donald W. Dony, FCSI, MFTA
Additional information on commodities and the U.S. Dollar is in the January Newsletter. Go to www.technicalspeculator.com and click on member login.