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Dorn: Gold And The Dollar

Wednesday, 6 Jan 2010 | 10:23 AM ET

Since December 22nd, GLD has been bouncing back from a steep and swift sell-off from its early December peak. The question is, can it recover or will it fail to make new highs in 2010?

My colleague Tony Cherniawski and I did a simple Elliott Wave analysis with the following outcome:

Let’s review what has happened in 2009 for starters.

The Elliott Wave Pattern shown in the chart and the cycles patterns seem to agree that GLD hit an important high in early December. Although January can be a very good month for the price of gold, it is possible the November has stolen its thunder in a blow-off top. A clearly impulsive pattern through December 3rd is displayed, suggesting at the minimum that a further downside correction is probable.

Let’s review some of the probable retracement targets for GLD to ascertain possible exit points and shorting opportunities. The Fibonacci retracements are 50% - 112.51, 61.8% - 114.21 and 78.6% - 116.63. There is an additional target at the upper boundary of the former trend channel near 117.50. If this is simply a retracement in the price of GLD, the rally may not last beyond a week or so.

The $64,000 question posed here is, “Is there a relationship that may be seen between GLD and UUP?” The following chart may provide some guidance.

UUP has been building a base since November 25th, when it first touched 22.02.

On December 4th, the same day of the reversal in GLD, it emerged from its declining (bullish) wedge formation. The larger view shows the Elliott Wave 5-wave Pattern is almost an exact inverse of the EW pattern in GLD. What this suggests is, for the time being, is that the inverse relationship between GLD and UUP exists and may persist for a while. The significance of this inverse relationship is that a wedge pattern often implies that the entire decline from 26.83 or 27.01 may be erased in this rally in UUP.

Does this mean that GLD may go as low as 85.00?

There is no hard and fast answer to that question. However, we may be warned that the possibility exists and prepare ourselves for whatever outcome that presents itself.

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Dr. Janice Dorn is the only Ph.D. (Brain Anatomist) and M.D. (Board-Certified Psychiatrist and Addiction Psychiatrist) in the world who actively trades, writes commentary on the financial markets and manages a subscription-based website. Dr. Dorn has been trading the gold futures markets full time since 1993. She has written over 1000 articles on trader and investor psychology, and mentored over 600 traders and investors.She writes on all aspects of trading psychology and provides a real-time trading service on her website: TheTradingDoctor.com.

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