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Inverse Relativity has deserted us, for now

Inverse Relativity has deserted us, for now 

USD Gold Silver Moving in unison 26 Jan 2011.JPG

We can vaguely detect from the above chart that the USD, Gold and Silver have been moving in unison over last three months. Instead of continuing with their inverse relationship they would appear to have adopted a strategy on hand holding over recently. In November all three were more less rising, followed by December when consolidation was the order of the day and now into January were all three have headed south.

The next chart shows how volatile the USD has been as it continues to oscillate wildly as each new event, such as the Euro strengthening, a money printing scare, a negative comment from someone perceived to be knowledgeable, etc, has a knock on effect. The effect works both ways with the dollar moving up for short stints and then back again. At this point the dollar is looking oversold and as has happened in the past it can stage a mini rally just when it appears to be at deaths door.

USD Chart 26 Jan 2011.JPG

The question is will gold and silver prices rally with it or will they remain in their own mini down trend. They have both had a good run and investors are taking profits and moving to the sidelines. Also add in that it is expiry week for options on the COMEX, so lower metals prices will see a lot of Call Options expire worthless. After that little event we have the upcoming FOMC meeting, where the rock stars of the administration meet for two days to deliberate and prepare their own monumental summary of the economic health of America. We expect the order of the day to be one of no change and would be stunned if rates were to rise at what is considered to be a fragile phase of the recovery. Assuming that you believe that the recovery is underway, we think not and wonder just what happened to all the talk of green shoots etc. This is a very tough time for the United states and will remain so for at least the near future.

When these two events have passed us by we will survey the landscape once again before recommending any trades. However, if you cast your mind back a few months the technical indicators of your favourite stocks were hard up against their own respective ceilings and during discourse with fellow colleagues you would have wished that you had acquired a few more of their shares. Well, that buying opportunity is quickly approaching, in fact it could be here right now. Pull up a chart of the producer that you are interested in and note just where the RSI is sitting, most are around the ‘30′ level which suggests that the stock is oversold and should be bought. After all this is a bull market and at the moment it remains intact, so these opportunities should be grabbed with both hands. You don’t need to go ‘all in’ but you could acquire a few now and maybe a few more a little further down the line. If you believe, as we do, that the year will end with much higher silver and gold prices then a small investment now could look simply sparkling come New Years Eve.

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Disclosure: I am long SLW.