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Written by Larry Baer  |

June 28, 2012

Larry Baer's Technicals: Strengthening US Dollar May Push Gold To $1250, WTI Below $70

Details

Bearish technical indicators and global slowdown fueling downtrends for gold, silver and oil.

Disclaimer: Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed.

In my last column, I described how gold and silver were in longer-term downtrends but not on the longer-term charts. Since then, the decline in gold and silver has slowed, but they may have revealed which way they are headed in the near and long term.

Silver & Gold

Since February silver prices have steadily declined until mid-May, when the white metal seemed to have found a foothold. Was this a bottom in the precious metals many traders have been waiting for?

I had yet to receive longer-term downtrend confirmation on silver’s longer-term charts. Silver then had a nice retracement from mid-May to early June, regaining support and even generating a buy signal June 12 on the daily chart.

But it appears as if this may have been a case of consolidation since silver failed to confirm a longer-term uptrend on the daily chart, and then negated its buy signal by giving a King’s Cross counter-trend sell signal. A King’s Cross involves the cross of the moving averages followed by a cross back that can be viewed as a technical indicator for re-evaluating the next longer-term price trend. Now silver’s trend on the daily chart has again changed to the downside and took out the recent low registered on May 16, both bearish indicators.

Silver Daily Chart

Taking a look at the weekly chart, silver gave a sell signal last week and the close below 26.895 confirms silver may be in a longer-term downtrend. On the monthly chart the trend is down for silver, but it will be three more months before it can qualify for a long-term trend confirmation.

Silver Weekly Chart

Gold futures are painting a very similar picture. On the daily chart, gold also seemed to find a bottom in mid-May, then was able to get above some support before sputtering. Now the trend has returned to the downside. On the weekly chart, gold gave a sell signal last week. On the monthly chart, gold has closed below its 20-period SMA for two months in a row, a bearish indicator.

A sluggish worldwide economy may play a major demand factor for retail and individuals not buying gold as aggressively as they have been in the past. While Indian gold demand from the first half of 2012 has been soft, demand from Russia, China and Turkey, among other central banks, remains strong. The demand for gold and silver from these countries may give the support needed to put in a floor for gold and silver prices until retail sales pick up once again. That suggests we may not receive confirmation of a longer-term downtrend on the monthly charts.

In my opinion, gold has a good possibility to slide down to its 50-period SMA on the monthly chart, which is the next major support area around $1250, a price that gold hasn’t seen since August 2010. Silver’s next major support level, its 50-period SMA on the monthly chart, sits at $23, and silver could easily test its mid-2010 price of $18 (the 100-period SMA on the monthly chart). If and when gold and silver reach these respective support levels, I believe we may see optimal buying opportunities for both precious metals.

Silver Monthly Chart

If silver closes above $34 on the monthly chart, this may indicate the beginning of a bull market, and a close above $1700 for gold in my opinion would suggest the same thing.

Crude Oil & Gasoline RBOB

Since the beginning of May, WTI crude futures have been in a super-trending decline, generating six sell signals on the daily chart during that time span. WTI generated a sell signal on the weekly chart last week as it approaches its lows registered in October of 2011. On the monthly chart, crude has closed below several major support levels and the trend looks as if it’s about to change to the downside. WTI crude has confirmed to me that it may be in a longer-term downtrend on both the daily and weekly charts.

Crude Oil Daily Chart

Gasoline RBOB prices have been in a steady move lower since the end of March. The RBOB also gave a sell signal on the weekly chart last week and has closed below its support levels. The trend on the monthly chart looks to change to the downside as well.

US Dollar Index

Aiding the decline of commodity prices is the recent strength of the U.S. dollar, which put in its highest high this month since July of 2010. Although the trend is down on the daily chart, last Thursday’s King’s Cross counter-trend buy signal is still intact. On the weekly chart, the U.S. dollar resumed its super-trend to the upside and is giving a buy signal so far this week. I define a super-trend as any market that is trending above its 9-period SMA. On the monthly chart, the dollar gave a buy signal last month and has closed above its 100-period SMA, a bullish indicator.

Oftentimes as the U.S. dollar increases, commodities decline and vice versa. This strength in the dollar will make it difficult for precious metal and energy prices to rally. Keep an eye on the U.S. dollar index to see if it confirms that it may be in a longer-term uptrend.

A strong U.S. dollar also attracts flight-to-quality investors, which may place additional pressure on gold and silver retail sales and their prices overall.

I’d look to buy gold and silver at lower prices.

Contact Larry Baer at This e-mail address is being protected from spambots. You need JavaScript enabled to view it. or call (312) 277-0112.

If you do own physical gold outright, I have a hedging program where you can protect your gold positions with options.

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Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed.