Gold Rebounds to $800

By Colin Twiggs
November 22, 2:00 a.m. ET (5:00 p.m. AET)

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Spot gold broke out above its recent triangle to test resistance at $800. This comes as a bit of a surprise because gold normally moves inversely to the US dollar index, which has not weakened. I also warned during the week that gold was likely to weaken in sympathy with crude oil, with oil producers selling off investments to maintain existing expenditure levels.

Expect retracement to test the new support level at $750. Breakout above $800 would indicate a rally to the upper border of the descending broadening wedge. The primary trend is down, however, and a failed swing that does not reach the upper border would be a long-term bear signal.

Interbank Spreads

The New York Funds Rate (1-month) remains at a healthy 50 basis points (0.50%) above the fed funds target rate. The Overnight Index Swap Rate, indicating traders best estimate of the effective fed funds rate, ticked up slightly but continues to point towards another 0.50 percent rate cut.

The market may be awash with liquidity but confidence remains at a low ebb. The yield on 13-week treasurys fell to a new low of 0.05 percent. Investors concerned about default risk are seeking safety over yield.

USA

Dow Jones Industrial Average

The Dow found support at 7500, retracing to test the new resistance level at 8000 accompanied by an upsurge in volume. Follow-through above the weekly high of 8500 would signal another test of 10000.

Long Term: The primary trend is down and penetration of the 2002 low of 7300 would offer a long-term target of 6000. This is calculated as 8000 - ( 10000 - 8000 ). Twiggs Money Flow (21-Day) remains below zero, indicating medium-term selling pressure. Recovery above 10000 is unlikely in the present climate.