RECORD TRADE DEFICIT SENDS DOLLAR LOWER -- BOOSTS GOLD AND CRB INDEX
TRADE DEFICIT BOOSTS FOREIGN CURRENCIES... The U.S. November trade deficit came in higher than expected and reached a record high. That's pushing the U.S. dollar sharply lower -- and foreign currencies higher. Chart 1 shows the Euro climbing back over its 50-day average. The Commodity Channel Index (CCI) oscillator shows the Euro rebounding from an oversold condition. The rallies in the Japanese yen and the Canadian dollar are even more impressive. Chart 2 shows that the yen stayed over its December low and is moving up to challenge its December highs. Chart 3 shows the Canadian dollar climbing back over its 50-day line today and on the verge of reaching a new January high. Its daily MACD lines have turned positive. As usually happens, foreign currency strength (and dollar weakness) is giving a boost to gold and other commodity markets.
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GOLD REBOUNDS FROM OVERSOLD CONDITION ... The Gold Trust Shares (GLD), which track the price of gold, are rising the equivalent of $4.50 in the price of bullion. The CCI line shows GLD recovering from an oversold condition. Earlier in the week, I showed that GLD was also testing a rising trendline drawn under its May/August lows (see arrows). I also suggested that the combination of trendline support and an oversold condition would start attracting funds back into gold and gold stocks. The falling dollar may also be helping energy shares which are rising again today. .
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NEWMONT BOUNCING OFF MAJOR TRENDLINE ... I also suggested earlier in the week that the Gold & Silver (XAU) Index was in an area of chart support around its 200-day moving average. Newmont Mining is the biggest gold stock in the XAU. The monthly bars in Chart 6 show that NEM is finding support at a four-year rising trendline starting at the end of 2000. I'm using a logarithmic scale (which shows percentage changes) in Chart 6, which is more helpful for longer-range trend analysis. Thanks to the falling dollar, most commodities are trading higher today
CRB INDEX BOUNCING OFF 200-DAY AVERAGE ... The CRB Index of 17 commodity markets is also bouncing off its 200-day moving average. In fact, this is the second time it's done that over the last month (see arrows). As you know, the 200-day line is a major test of an ongoing bull market. That's why it's important that the CRB Index start to strengthen from this area. It's up over a point today with most of its component commodities in the black. If the CRB is able to regain its upward momentum, that may give a boost to basic material stocks which have been under pressure lately. Chart 8 shows the Materials Select Sector SPDR (XLB) trying hold support at its December low.
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