RISE IN DOLLAR CAUSES PROFIT-TAKING IN PRECIOUS METALS -- GOLD AND SILVER ETFS GIVE SHORT-TERM SAR SELL SIGNALS

DOLLAR BUYING PUSHES GOLD LOWER ... Yesterday saw the first serious selling of gold and silver in more than a month. Part of that selling is due to technical factors. Part of it is also due to a rising dollar. While geopolitical concerns have helped boost gold and oil prices recently, it's also boosted the dollar which is still considered the world's reserve currency. In times of international turmoil (especially where the U.S. isn't directly involved) money tends to move into the U.S. currency. Of all the commodity markets, gold is the most sensitive to a rising dollar. Chart 1 shows the U.S. Dollar Index closing at the highest level in three months on Monday. [It's up again today]. A decisive close over 87 would turn its short-term trend higher. At the same time, gold suffered a downside reversal on Monday from an overbought condition. The 9-day RSI line had reached overbought territory over 70 for the first time since May. And the daily stochastic lines are turning down from overbought territory over 80. The fact that gold had retraced two-thirds of its May/June decline in such a short period of time also made it vulnerable to some profit-taking. One of our very sensitive short-term indicators is giving a short-term sell signal in today's trading.

Chart 1

Chart 2

PARABOLIC SAR SELL STOP IS HIT ... Chart 3 applies the Parabolic SAR system to the streetTracks Gold Trust Shares (GLD) through today. During a downtrend (mid-May to mid-June), the falling SAR dots represent buy stops over the price bars. In a rising market (mid-June to mid-July), the rising SAR dots represent sell stops below the price bars. The first red arrow shows a sell signal given on May 15, which was followed by a buy signal on June 21 (green arrow). Today's downturn has given the first sell signal in nearly four weeks. Although the SAR has not been as reliable in the silver market, Chart 4 shows the iShares Silver Trust (SLV) gave a short-term sell signal yesterday. Chart 5 shows the PHLX Gold & Silver (XAU) Index trading back below its 50-day moving average for the first time this month. These setbacks don't upset the long-term uptrend in precious metal assets. They do suggest that it might time to take some short-term profits -- or postpone any buying for the time being.

Chart 3

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