 ChartWorks
Gold
Technical observations of RossClark@shaw.ca
Bob Hoye
Institutional Advisors
January 28, 2005
I continue to wait for gold to generate a short term 'buy' signal
by either declining enough to produce an oversold CCI(8) reading
or staging a breakout of a trailing 20-day high. The other ingredient
that is unnecessary following the Economic Confidence Cycle,
but would be comforting to see would be a bullish divergence
in the XAU or HUI over the bullion price.
Following this 'buy signal',
we could see the curiosity of gold and the U.S. dollar recovering
together.
US Dollar and Gold Poised for Joint
Advance
The US Dollar Index has accomplished
a pattern that I term an "isolated low". This is established
when a market makes an expanding pattern at the end of a decline.
Ideally, it occurs when the market has been in a well defined
downtrend and makes a low that generates an RSI reading below
35 (Point 1), rallies to produce an interim swing high
(Point 2) and then declines to a new low (Point 3).
From there, prices rally in an uninterrupted motion to exceed
the previous Point 2 interim high. This pattern was in place
as of the week of January 7th (Point 4) and is the 12th
such daily or weekly occurrence since 1985. The ensuing downside
corrective low (Point 5) needed to hold above Point 1
which is deemed to be a viable spot for controlling risk.
From Point 5, it is likely
that we will see the US Dollar and Gold rally together. Optimally,
the upside pairing lasts for 5 to 6 weeks.
Looking down the road a few
months, if the Dollar manages to achieve a weekly RSI(14) reading
over 61 then the probability of a multi-month rally beyond that
is very likely. At this condition, the chances of gold continuing
higher would be diminished. However, if the Dollar peters out
with a mediocre RSI reading then the gold market should really
spring to life.
US Dollar,
RSI(14) and Gold - 1995 to 2005
Isolated
lows circled in Red
Upside
pairing with gold in grey
US Dollar, RSI(14) and Gold - 1985 to 1995
Bob Hoye
Institutional Advisors
E-mail bobhoye@institutionaladvisors.com
Website: www.institutionaladvisors.com
CHARTWORKS - JANUARY 25, 2005
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