GOLD FALLS ON FIRMER DOLLAR -- FALLING ENERGY PRICES PULL CRB EVEN LOWER -- COMMODITY ETF IS ALSO ON THE DEFENSIVE

GOLD ETF GAPS DOWN ... The price of gold is falling pretty hard today. By early afternoon, the Gold ETF (GLD) is down the equivalent of $16. Silver is falling as well along with most other commodities. Chart 1 puts today's gold selling into the context of its two-month trading range. First of all, GLD failed a test of its two-month down trendline near 64 (see arrow). Secondly, today's lower gap leaves behind a potential "island reversal" (see circle). [An island reversal occurs when an up gap is followed shortly by a down gap. It's usually a negative pattern]. Thirdly, today's gold selling is taking place on rising volume. No serious chart damage has been done as of yet. But today's selling does suggest that a retest of the summer lows is likely. Part of the selling is due to a bounce in the U.S. dollar and pullback in most foreign currencies. Chart 2 shows the Euro threatening its August low and its 50-day moving average. Part of the dollar buying may be due to higher U.S. labor costs (which is inflationary) which could prompt the Fed to raise rates again at some point in the future. Meanwhile, weak energy prices are helping to pull the CRB Index lower

Chart 1

Chart 2

CRB INDEX CONTINUES TO FALL ... The Reuters/Jefferies CRB Index is slipping below 325 today for the first time in five months. A lot of that selling is coming from agricultral markets (mainly the grain and soybean complexes) as well as energy. Chart 4 shows crude oil trading at a five-month low on higher weekly inventory figures. Crude is also in danger of breaking its 200-day moving average. Energy has an unusually heavy weight of 40% in the new CRB Index and is the main reason the CRB Index has broken its June low. By contrast, the DB Commodities Tracking Fund (DBC) in Chart 5 is still trading above its June low. But the DBC is trading below its 50-day moving average (which in itself warrants some profit-taking) and is clearly on the defensive. I have been of the belief that economic slowing would weaken the dollar and could benefit gold. It's hard for gold to rally, however, while the dollar continues to bounce.

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Chart 5