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May 19, 2008

Precious Thoughts

The setup for an impending rally in precious metals was constructive today. Both gold and silver edged higher in the face of a small rally in the dollar, and platinum shot 1% higher. Mining shares, for their part, were initially 2-3% higher but closed flat. I'm not sure what to make of their retreat from early gains, but for now the important thing is that they held their recent consolidation breakout:

stock chart

One concerning factor is the current setup in the dollar's chart. While Friday's swoon was encouraging, it did not break any support. In fact, the intraday view looks quite constructive for further strength:

commodity chart

Anyone worried about further dollar strength derailing a PM rally may wish to simply buy some DX contracts as a hedge. I have a hunch that if the dollar falls, PMs will rally strongly, but if the dollar rallies, PMs won't necessarily fall. I like those types of hedges.

 

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