Will this bounce at support mark the bottom of this sell-off? Possibly, but before going there, let me bring a few additional charts to your attention. First, here is Gold.
As you can see, similar to Silver in the initial sell-off from two weeks ago, but notably stronger performance during this past week by not putting in a new low when the sell-off resumed.
And here is a chart of WTI Crude
Once again, very similar to Silver, and though it got much closer to putting in a new low on Thursday, like Gold, it too bounced and reversed higher before consolidating with in a range on Friday.
And now, take a look at the EUR/USD chart (that's Euro-US Dollar for any newbies out there).
Are you starting to see any similarities here? For those who were relegated to taking the short bus to school, the selling in all of these charts, though each slightly unique, all began on the same day and have continued on roughly the same path over the past 7 or so trading days.
Coincidence?
Well, I gave you a clue in the title to this post. "Dollar on", remember? Yes, all of the commodities listed above are dollar denominated, and the trading pair EUR/USD is also reflection of dollar strength or weakness. This being the case, the following chart of the US Dollar Index should come as no surprise.
Low and behold, the USD has been rallying a bit over the past 7 days, and that has, in part, been the cause of the sell-off we've seen in commodities. To be precise, the dovish comments from ECB chief Trichet regarding further interest rate tightening in Euro land caused an immediate sell-off in the Euro...300 pips worth over a single day. That was the catalyst. Then came a series of margin hikes for silver and oil futures contracts in a manner never before witnessed in recent times (perhaps ever!), and voila, everything came crashing down.
Does this mean that we've turned the corner and all is well again with the Dollar? Go back and ask yourself the same questions posted in my previous post. In a word, "no". However that doesn't mean we won't see short term snap back rallies in the dollar as it continues to plummet. After all, the Euro and Europe are not much better off than we are, so for a time, I fully expect to see the USD/EUR relationship go back and forth, taking the commodities complex along a similar ride. Dollar strong = Euro and commodities weak, and vice-versa. But then there will come a time when commodities (gold and silver in particular) will completely decouple from the EUR/USD trade and go their own way....up.
But that's another story for another day. For now, we could see further dollar strengthening as the debate around further Greek debt restructuring nibbles away at Euro credibility, which could result in renewed selling early in the week on our precious metals. On the other hand, note again the relative strength of Gold during this entire episode....and of course, keep an eye on crude. It's not like the Middle East has suddenly turned into a land of peace and harmony. A new flare-up in this region could spike oil prices anew, and drag the PMs along with it.
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