JAPANESE INTERVENTION FEAR CAUSES REBOUND IN DOLLAR -- GOLD AND GOLD SHARES DROP
DOLLAR REBOUNDS OFF JANUARY LOW... Earlier today it looked like the U.S. Dollar was breaking its January low near 85. As chart 1 shows, however, the Dollar Index scored an upside reversal day. Part of the rebound may have been technical in nature. The daily RSI and MACD lines are showing some positive divergence in an oversold market. The main catalyst for the dollar rebound, however, appears to have come from fears of Japan central bank intervention to weaken the yen versus the dollar. Chart 2 shows the Japanese yen falling sharply today and breaking its 50-day moving average for the first time in months. When the yen falls, the dollar rises. The Euro, meanwhile, turned down after retesting its January high near 1.28. Although the longer-range trend in the dollar is still down, today's turnaround does suggest that downside momentum has been broken at least over the short-term. The dollar turnaround, however, was enough to cause a $5.00 drop in the price of gold.
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GOLD DROPS $5.00 -- GOLD SHARES LOSE 4%... Since gold usually trends in the opposite direction of the dollar, it's not too surprising that the yellow metal lost $5.00 today. Just yesterday, gold closed at the highest level in a month. Today's selling puts the 50-day average in jeopardy. With gold on the defensive, gold stocks lost more than 4% today. The XAU Index (and the AMEX Gold Bugs Index) both closed back below their 50-day lines. In my view, the longer-range trend of gold is up and the dollar down. However, gold and golds shares appear to be stuck in a corrective pattern within that long-term uptrend. That correction will probably last until the dollar starts dropping again.
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