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Will Precious Metals Reach New Highs? Ask the Dollar


USD is one of the key factors in determining sector price swings.

This week we've seen gold and silver move lower. Gold closed the week below $1,000, and silver topped exactly in tune with the cycles that I mentioned in my previous article. Where do we go from here -- and how fast? Let's take a closer look at charts (courtesy of and see what may be waiting just around the corner.


Click to enlarge

The long-term chart confirms that gold rose a little too fast for the rally to be sustainable. Consequently, we've now entered a consolidation phase. For now, it doesn't seem that gold will spend much time correcting the preceding move. It's closed several days above the long-term trend line (blue thick line on the chart above), so the breakout above it has been confirmed.

The price of gold failed to move above the 2008 high so far, but once we go above it, we shall see some real action in this market -- especially considering the high volume that accompanied the beginning of this rally. Things look promising because every barrier below the 2008 has already been taken out. Anyway, a move lower to the upper border of the previously mentioned triangle pattern isn't out of the question in the short term.

The final outcome of this situation depends on how the situation develops with other markets, with the USD Index being the most important one at this point. I'll get back to this market later in this essay, but for now, let's take a look at gold's little brother: silver.


Click to enlarge

When I first mentioned the remarkable self-similarity in the silver market (red rectangles on the chart above), I knew pattern was an important factor when estimating the future performance of silver for the next several days at least. But it turned out that the January-February performance was a perfect roadmap for the whole September rally. This outstanding similarity has been a great indicator so far, but it virtually has to become less reliable in the future, as history doesn't repeat in every detail at all times -- it "rhymes."

The current situation in the gold market suggests that the irregular (in terms of the ongoing self-similarity) is likely to surprise us positively. When gold breaks up through the 2008 high and verifies the breakout, I expect silver to move quickly higher, even if the pattern suggests further consolidation. Still, for now it seems that silver may need to go lower before resuming its upward trend.
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Positions in gold and silver.
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