GOLD BOUNCES OFF SUPPORT SWISS FRANC WEIGHS ON EURO WEAK EURO BOOSTS GOLD

GOLD GETS ANOTHER OVERSOLD BOUNCE... For the second time in as many weeks, the Gold SPDR (GLD) is bouncing off support after becoming oversold. Last week I showed GLD as 3-period RSI became oversold. This bounce did not hold as gold returned to support early this week. Once again, GLD is bouncing off support after becoming oversold. Chart 1 shows GLD with the 20-period Commodity Channel Index (CCI) . The green dotted lines show the indicator moving back above -100 from oversold levels. Looking at the price chart, the overall trend remains up with lots of support around 87.5. This support area stems from the rising 50-day moving average, broken resistance and the November trendline. In addition, the three week decline retraced 50-62% of the Jan-Feb advance. This is as good a spot as any for GLD to bounce. Failure to hold this bounce and a break below the March lows would be quite negative.

Chart 1

SWISS FRANC PLUMMETS... The Swiss Franc ETF (FXF) fell sharply after the Swiss National Bank announced intervention plans designed to push the currency lower. In addition, the bank cut its key interest rate, the Swiss Franc London interbank offer rate. As chart 2 shows, the combination of intervention and rate cuts sent the Swiss Franc ETF sharply lower in early trading on Thursday. Even though Switzerland is not part of the European Union, the sharp decline in the Swiss France appeared to affect the Euro. Chart 3 shows the Euro ETF (FXE) moving lower today. While not exactly perfect, these two currencies appear to be positively correlated. Both surged in December, plunged in January and firmed in February-March. With the Swiss Franc ETF breaking its February-March lows, the Euro ETF is now holding up much better. FXE is still challenging resistance at 129 and a break above this level would be quite positive for the Euro.

Chart 2

Chart 3

GOLD AND THE EURO... Gold bugs may want to pay attention to the Euro as well. Chart 4 shows the Euro ETF (FXE) with the Gold SPDR (GLD) over the last five months. Gold and the Euro moved in tandem until mid December. They diverged at this juncture as gold surged higher and the Euro fell sharply (orage area). Notice that the Euro ETF began firming in mid February and the Gold SPDR peaked in late February (yellow area). Gold seems to prefer a weak Euro at the moment. This is also true in early trading on Wednesday as gold is up and the Euro is down. Judging from this newfound relationship, a resistance break in the Euro ETF (FXE) could lead to a support break in the Gold SPDR.

Chart 4