truecontrarian.com
SUMMARY: My current outlook for gold and gold mining shares has dropped to MODESTLY BEARISH. The recent sharp collapse in the U.S. dollar reached its likely nadir today in response to U.S. secretary John Snow’s usual ill-considered comments at the weekend G-7 meeting. Even in the absence of intelligent life in the current Republican administration, the greenback’s collapse has likely been overdone in the short run. After falling to the point where one euro purchased 1.1728 dollars at 4:38:12 a.m. EDT, this morning, the dollar very quietly recovered to 1.1640 by the end of the trading day. Additional attempts to decline cannot be ruled out, but the oversold condition is close to a technical extreme. As the U.S. dollar rebounds, gold is likely to retrace perhaps $25-$33 of its recent gains, potentially reaching a June bottom of $333-$342. Most gold analysts and even some who are not usually interested in the yellow metal have recently been making significantly more frequent positive comments about gold and have been investing in gold mining shares. These sentiments are likely to prove accurate in the long run, but for now, investors should sell some of their gold mining shares in anticipation of being able to repurchase them more cheaply next month, probably close to their respective 200-day moving averages. Gold’s traders’ commitments show very few total speculative short positions, indicating that there is sparse fuel left to enable the rally to continue much further. Even a fabulous automobile cannot go far on an empty tank. HUI, which had climbed 24.97% from its March 13 nadir of 112.61 to today’s intraday peak, is unlikely to decline below its April 29 nadir of 120.44, since its pattern of higher lows remains intact, as is characteristic of any long-term bull market. Meanwhile, after QQQ had virtually the same intraday high on each trading day last week, the U.S. stock market finally gave up the ghost today. It may bounce later this week, but will probably not exceed 29 for QQQ or surpass other important index benchmark intraday highs set last week. Given that VXN hit a new low today of 30.37 and QQV hit a new low on Friday of 25.60, the Nasdaq could well drop 40% by this autumn to a level below 900. |
