Sector Wide Technical Analysis
Gold, Silver, Oil, USD & Copper
Roy Martens - Netherlands
The following is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at www.resourcefortunes.com. Visit our homepage to sign-up for our free newsletter and download a sample of our Premium Newsletter.
All charts current as of the close on Friday, October 5th, courtesy of Stockcharts.com
Last month it looked as if the world indexes were ready to break down, due to the negative news about the sub-prime loans.
When we look at the markets now, it hardly seems like the sub-prime debacle ever hit us. The negative news about the big banks writing off billions due to these bad loans has virtually no impact any more. The DOW is charging higher as it was in the best days of the nineties. Have people really deluded themselves into thinking that the worst is over? Are they perhaps putting full faith and confidence in the Fed or the government to provide sufficient funds to deal with this crisis?
I really don't know, but it strikes me as very odd that new highs are being reached in the US stock markets, while the impact of this loan bubble still isn't entirely clear to anyone. For us here in Europe, the new records being set by the DOW are still a long way off from the highs made in 2000 when we take the decline of the dollar into account. Since 2000 the dollar lost more than 70 % of its value against the Euro, making investments in dollars nothing to brag about.
Last month there were huge injections of money into the financial system to ease the fear of a breakdown of banks, but all this money will not make the crisis disappear.
The only thing that it will accomplish is to create steeper inflation in the long term. The value of the dollar is dwindling fast along with any faith that it will make it through all of this in tact. Several countries have already spoken out that they will trade away from the dollar. Even Saudi Arabia is thinking seriously about letting the dollar go by the wayside.
As I said last month, this will work very much in favor of the precious metals and other commodities. Indeed, the charts below will show several metals have already taken off -- and this could be just the beginning of a very strong rise into 2008.
The only thing we need right now is for the juniors to follow the example of Gold and Silver and start a powerful rise. Everything is in place. All we need is some sort of psychological trigger to get things going again.
GOLD
Gold charged higher as expected and it reached new heights above the $740 level.
Gold is holding steadily above its 14 day MA and the red line 1 in the chart. As long as it maintains this position we can expect it to go even higher from here, possibly after a small consolidation or correction.
Should a correction occur it could take gold to the aforementioned red line 1, and maybe even as far as the support at $700. However, the current consolidation around the $740 level could already be enough to cool things down in preparation for the next rise. As long as the red line isn't breached, the latter option appears more favourable.
SILVER
Although belated silver finally followed the example of gold and broke out of its downtrend, signalling the end of this long correction from the highs made in February.
After such a price surge it is only logical that Silver has to take a small breather to gather new strength for the next thrust higher. This next move should take silver well above the prior highs just below the $15 level. Both the 14 and 50 day MA are rising, indicating that the trend has changed from down to up -- and as long as silver stays above the 50 day MA the expectations of higher prices into the end of the year are very much alive and kicking.
OIL
As indicated last month, a new high for Oil was expected, and that is just what we got. Oil charged through the minor resistance at $78 and broke out to new highs above the $82 level. Is this it or is there more to come?
It is my opinion that there's more to come. The chart still looks very good, having established a firm uptrend with both the 14 and 50 d. MA rising in a nice angle. The current consolidation provides some time so that the 50 d. MA can catch up with the Oil price. The indicators also need some time to cool down a bit from overbought levels.
As long as Oil stays above the blue support zone, higher prices into the end of this year can be expected.
US DOLLAR INDEX
As expected, last month the dollar dropped below the 80 level. Now the USD is sliding further downhill. The pace of the decline, however, isn't as severe as was expected after breaking below the very important 80 level. Instead of a landslide, we got a slow decline.
I guess there are a lot of people trying to do their best to support the dollar, who will take care to let it decline gradually. But this weak support can't hold up a steep decline for long, if the confidence in the dollar keeps dwindling as it is right now.
The chart is showing that a small bounce up can be expected, but as long as we stay below the 80 level, a rapid decline is still very possible sooner or later.
COPPER
The chart for Copper has improved a lot since last month. The presented EW count suggests that we could be within a wave 3 higher. The ABC correction seems to be finished and if the 380 level is taken out we will get the confirmation we need for the wave 3 count.
This wave 3 could/should take us a lot higher from here. Wave 1 took us form 240 to 380, a wave 3 is often 1.62 % of wave 1, suggesting that a price target of 537 is possible (bottom wave 2 at 310 + 162 % of 140).
Imagine what such a price target would do for mines involved with copper!
(Editor's note: FCX should be a prime beneficiary of a copper price increase)
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