USD is making a move this morning to firm up a hold of the first support level, as noted in an August 19 update. Here is the updated daily chart showing that support, but the link has a monthly view that shows why it is support. There is more and stronger long-term support at 88.60.
The bounce thesis has been in play due to the deeply oversold condition (and new RSI positive divergence at this week’s low) and the terribly over-bearish sentiment profile.
However, USD has not even taken out the EMA 20 (black line) and it needs to do that and make a higher short-term high to signal a greater bounce to the hard declining SMA 50 (95.24) or strong resistance at 96.
From the August 19 update:
As for the precious metals, if this is a fake out bounce in USD it’s probably as you were and a normal correction for the PMs. If USD develops into a real counter-trend rally situation remember that scores of inflationists would probably start hitting sell buttons on the miners. It’s wrong-headed (the same pressures that would drive a USD-supportive rush to liquidity would drive up mining fundamentals), but it’s the way it usually goes.
The above are my thoughts. Some of them may prove right, some wrong. But it’s how I see the situation at the moment.
With respect to last night’s update on HUI, my guess was that it may break the Diamond consolidation to the upside. If the buck continues upward and the inflationist bugs do what they usually do, we’d likely get a downside break and test of the SMA 50, which was the other option. If things were to get nasty enough, a test of the rising SMA 200 could also come about. Both options come within an up trending situation and both would be healthy on a long-term view.
But the bottom line for investors is this; sure, you try to get out of the way (whether functionally or just mentally) of an inflation-centric gold bug when he’s puking his mining shares due to the latest failure of inflation to take hold (represented here as a strong USD short covering rally). But you buy his pukage, you don’t run with him.
So if the buck bounces hard and assuming stock markets take a correction of some kind, a new buying opportunity in the miners would be indicated. The same elements that would drive a USD rally would drive the miners’ fundamentals as well because the Gold/Silver ratio would likely rise too and so would gold’s ratios to cyclical and risk ‘on’ markets.
So let’s watch Uncle Buck and keep the options open. Step 1 is to take out the EMA 20. Step 2 is make a higher high above the August high.