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US Dollar Sentiment Powers Gold Double Bottom

Morris Hubbartt
Weekly Market Update Excerpt
posted Oct 21, 2011

US Dollar Sentiment Extremes Chart

Dollar Commentary

  • Most of the world’s investment community has fled risk assets with each worsening stage of the crisis, and ran to the liquidity and purported safety of the US dollar. Data from www.sentimentrader.com shows that each top on the dollar chart above was accompanied with a huge swing in pro-dollar sentiment.

  • The data looked skewed two weeks ago, but it’s gotten even more lopsided with the dollar selling off slightly. The traders think it is a bargain. The current sentiment readings for the US dollar are so extreme they are challenging the records set in the 2008 panic. After the dollar topped in that move, it declined by nearly 17%. A similar move would put the dollar in the 66.00 range, close to my original 65.00 target. In a panic situation the dollar can rally again, but the upside days look numbered.

UUP (US Dollar Proxy) 3 Surge Top Chart

  • Volume indicates this move up in the dollar will be brief. I have included the currency UUP in this report to demonstrate volume and the short term price target on the upside that I see, before the enormous primary downtrend resumes.

Gold Super Highway Chart

Gold Analysis

  • The time window for the gold correction is coming to a close; look for $2000 by January, 2012. My chart projects that gold has a very long ways to go on the upside. What I have termed “Phase 2” is a stage of the bull market that will show investors extreme volatility. Look at the above chart; gold is likely only at the very beginning of a new and substantial uptrend.

  • The best strategy now is to buy the physical metal, especially in the price area of $1625. Governments on the western side of the globe have an addiction to spending, and their only solution is to print and devalue their fiat currencies. We are also witnessing a major decline of investor confidence. More paper solutions without any real restraint of spending are not a solution to anything.

  • The “great gold awakening” continues, and with good reason; middle class savers who hold their money in the banking system are not getting enough interest to offset the rising price of the real world goods they need. The Fed is quietly devaluing the currency and perhaps even engineering inflation, in an attempt to relieve the government debt problem. This action allows the government to finance a large part of its debt at a very low interest rate on the backs of savers, but more people are starting to look at gold as real financial security.

GDX Breakout Chart

  • As the gold bull market has progressed, there has been a lot of speculation concerning the possibility of gold confiscation. From a technical and practical perspective, what is really confiscating your holdings is the volatility of the gold price.

  • Understand what you own and the value and of it; gold is the best answer to the debt crisis and gold shares are the greatest long term beneficiary of a higher gold price.

GDX Short Term Target Chart

  • The scariest part of a correction often comes on double bottoming action. The action we have seen this week falls into that criteria. Volume is behaving as you would expect, as it is considerably softer than it was on the initial plunge.

GDXJ Short Term Target Chart

  • Another week of enormous volatility for junior metals stock investors has just occurred. The volatility is becoming the norm, rather than the exception, and it will only increase as the gold price “car” rises and falls in the super highway, which is really a semi-parabolic uptrend. One of the objectives I was looking for on the GDXJ trading chart was a pull back to the $28.00 area.

  • That target was acquired this week, and while it probably feels like a last ditch effort of some “manipulator” to take your shares, the simple reality is nothing is out of the ordinary, on a technical level. The big bullish picture is as healthy as ever, and in fact more so, from a sentiment analysis standpoint.

Silver Launch Box Chart

  • Silver is a highly volatile metal, but it could bring some serious rewards if you are patient and buy really serious weakness in the price. Commercial (smart money) buyers now appear to be even more bullish than they were at the lows of 2008!

  • Is your table set, for a similar rise to what occurred from the lows of 2008 to the highs of 2011? If it happens, a similar percentage move off the current lows, shockingly, allows for silver to soar to almost $300 per ounce. In the silver market, are you sitting on one of the greatest opportunities of all time, today? I think so.

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Oct 21, 2011
Morris Hubbartt

321gold Ltd