Watch the Dollar for Gold and Silver Strategies

by Greg Perlin

Speculation about a stronger U.S. dollar was said to have contributed to declines in gold and silver prices Monday, June 25, 2007, but on a longer-term basis, I see upside potential for these markets.

Gold and silver prices usually trend in the opposite direction of the U.S. dollar, and we could see some activity in these markets later this week after the Federal Reserve concludes its two-day policy meeting on Thursday, June 28. No change in interest rates is expected, but the Fed’s accompanying language might give the dollar—and metals—reason to move.

Gold

On Monday, June 25, 2007, August COMEX gold futures closed down $2.30 to $654.70 an ounce. Gold has been in a downtrend, once it broke through last week’s lows, around $655- $656, declines were extended. Ranges haven’t been big, but with a bearish slant. I would recommend buying gold near the March 5 low at $647.20, which I see as good support, and the area of $650 - $645 seems to be a psychological range attracting buyers. There are a lot of people still bullish based on a longer-term opinion that the dollar will be weak, and the U.S. economy could slow. While the dollar has gained some ground, I am not certain that trend will persist—we’ll see what upcoming economic data show.

I use moving averages to get ideas, and Monday’s price action put gold futures below both the 200-day and 100-day moving averages, which comes in at $675.80 and $656.70, respectively. While classic technical analysis would dictate that’s a bearish sign, I see the longer-term trend as up. I would recommend stepping in and buying around $647.20, with a target at the 200-day moving average at $675.80, and a stop at $640. In the next three months, I see a run to $675 – $680 in the August contract.

Silver

Silver also saw a down day Monday, with the September contract down 16.6 cents to $13.158 an ounce. While the market has hit a significant low and is looking bearish in the short-term, I see a coiling pattern on the charts without a lot of volume, so I’m not too concerned. The 200-day moving average comes in at $13.7150, while the 100-day comes in at $13.30. I’d recommend buying if the market falls to $12.68, near the low from January 5, 2007. I’d put a stop at $12.380, and I’m looking for $13.30 as an objective for a low risk-reward trading strategy. The dollar has been strong the past few weeks, but if the dollar gives up strength, gold and silver should benefit. In the next one-three months, I think silver will gyrate between $13.30 and $13.71; these are areas where good volume has been seen.

Greg Perlin is a Senior Market Strategist with Lind Plus. For more information on this topic or others, he can be reached at 800-437-4189 or via email at gperlin@lind-waldock.com.

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