Gold has been up for 5 of the last 7 weeks and silver for 7 of the last 8 weeks. One did not need technical indicators to infer a rest period was in order. Unfortunately, silver is still 1.44 times above its 200 day moving average while gold is considerably better at only 1.08 times.
Silver has indeed been rocketing higher recently. The source of all the buying is indeed a mystery. Numerous reports show world central banks adding to their gold reserves on a net basis. Now China is reportedly going to add to its silver reserves as well and they are already a net importer of silver. The question is, what happens if other countries follow suit and what will that do to the price?
As mentioned in prior updates, the dollar is having trouble getting any kind of upward acceleration even with the present unfavorable world economic and political events. Money flows have been going into other stronger currencies during this period such as the Swiss Franc. This does not bode well for the dollar as the "go to" place to be in crisis situations as it was in the past.
In addition, more countries are doing bilateral trade deals in each others currencies with increasing frequency. These include bilateral agreements between Russia and China, China and Brazil, Germany and Russia and also between India and Iran. These developments are definitive as to the future trend and use of the US dollar.
World dollar transaction use is still high but in a declining trend. Now the dollar has fallen thru the 76 support area and possibly will decline to other lower support areas. This event will probably trigger the HUI/Gold ratio to a more substantive bullish posture.
Let’s review the XAU and the S&P500’s progress since both are tied to the dollar and gold’s performance.
XAU Update
The XAU gold/silver index has an adverse conflict of cycles between the daily, weekly and monthly trends. This development is of primary importance for trading purposes.
The XAU index experienced a daily chart bottom in late January. Unfortunately, that positive event did not migrate into a positive weekly trend for the Trend Directional (TDI) or Gravity Center (GC) indicators which are still in downtrends currently. Both the TDI and the GC indicators must agree in any time frame.
The XAU daily trend for the TDI/GC indicators is now in a bearish mode. Additionally, the weekly XAU chart below continues in the previously indicated flat downtrend.
XAU Weekly Chart
The XAU monthly chart below is still in an uptrend, however, it should be noted that the Pendulum SRA Cycle Indicator is turning over.
XAU Monthly Chart
Two out of three time frames are clearly indicating a bearish trend and a SRA cycle question mark exists in the monthly chart. This development is clearly not good.
XAU Summary:
There is no current evidence for an immediate surge to 00 gold, silver or new highs for the XAU, as suggested by many others. In my opinion, that day will come but only after a considerable period of backing and filling activity. Here is where I would prefer the indicators to be dead wrong.
S&P500 Update
The S&P500 daily chart is clearly bearish with a continuing TDI/GC down trend, as previously noted on the website 3/1/11. This daily down trend is within the context and setting of a continuing positive weekly and monthly TDI/GC up trends.
The weekly trend chart below, while positive from a TDI/GC viewpoint, does show the Pendulum SRA cycle indicator in a down trend The current data point for the SRA indicator is currently at 6 (0-100 parameters) and declining after a 4 week retracement in the S&P500.
S&P500 Weekly Chart
S&P500 Summary:
The daily S&P500 TDI/GC trend is down while the weekly and monthly charts are still in up trends. This suggests that any further decline on a daily basis will be of a limited nature and duration given the positive weekly and monthly background. Previously, a possibility of the S&P500 extending down to the initial 1250-1270 support area was suggested. This event was realized and a period of stabilization above those levels should now occur. A fall below the worst levels (SPX 1261) would be extremely disturbing to participants and observers.
In Conclusion:
The dollar is falling while gold and silver continue in up trends with silver being exceptionally strong. Unfortunately, the XAU is not responding to this strength due a conflict in cycles. This is not encouraging at all for investors in gold/silver stocks which typically have similar cycles and trends to gold and silver.
To repeat, there is no current evidence for an immediate surge to 00 gold, silver or new highs for the XAU, as suggested by many others. In my opinion, that day will come later this year but only after a considerable period of backing and filling activity.
The S&P500 is seen as stabilizing above 1261 for the time being with two of three trends in its favor.
For additional commentary on the S&P500, gold/silver, oil, dollar and related markets, click here. To be added to the free email update list, click here. Your email address is protected and is not shared with anyone.
