Major Volume Supporting USD
Source: Jeb Handwerger, Gold Stock Trades (10/25/10)
". . . as gold and silver come under pressure."
The collapse of the dollar has caused other countries such as Japan to intervene in the markets to support the U.S. currency as a weak dollar curbs demand for Japanese exports.
Although I have called for a dollar bounce over the past week I want to reiterate that I do not believe the move will be long lasting. The currency crisis is in early stages and quite often there are violent corrections which provide long-term holders a great buying opportunity. Investors should be aware of the massive buying in the Dollar ETF (UUP). This signals a major move going into the dollar as it tests all time lows. It could signal a bottom.
This bounce in the dollar and correction in gold is to shakeout weak hands from the long-term trend. It also hurts investors who have been buying in at very overbought levels. Throughout this 10-year bull market in gold it has been a series of two steps ahead with one back. Now we are in the retrenching stage which is what I warned about exactly two weeks ago. Major moves when sentiment levels reach extremes are accompanied by powerful reversals which we have observed this past week in the dollar and gold. This past week we saw a major gap down and a break of the 20-day moving average. I do believe this short term down trend could continue for a few weeks to work off overbought conditions and to shakeout late comers and investors who are over leveraged.
Look for gold and silver to move to support and create a new buy signal. Patience is key to buying gold and there continue to be times along this bull run where gold is oversold and out of favor. I am looking for those key areas. To find out key areas of support and price levels where secondary buy points should occur log on to my website at http://goldstocktrades.com for my free daily newsletter.
Disclosure: I own gold, silver, mining stocks and some U.S. dollars.