Gold breaks out

August gold broke through its downtrend line on Friday, forming an inverse head and shoulders. The U.S. dollar index is, conversely, breaking down from a three-month upward-sloping channel. If these moves are confirmed, a significant short-term rally can be expected in gold, and a significant decline in the dollar.

GOLD (daily)

Upside: Gold has broken out from a three-month inverse head and shoulders. RSI and MACD are rising strongly.

Resistance: Fibonacci 23.6% retracement line at about $944; first lower high at about $960.

Downside: No clear indication.

Support: Downtrend line at about $920; falling 50-day MA, currently at $891.88.

Bottom line: Gold may test its broken downtrend line. If it does that successfully, the yellow metal could enjoy a run of about $100 -- the depth of the head in the inverse head and shoulders.

SILVER (daily)

Upside: Silver is back above its falling 50-day MA. RSI is rising strongly.

Resistance: Top rail of magenta channel, just overhead; top rail of thin blue channel at around $18.10.

Downside: Both the magenta and thin blue lines have offered effective resistance in the past.

Support: Falling 50-day MA, currently at $17.07; bottom rail of magenta channel; rising 200-day MA, currently at $16.22; bottom rail of thin blue channel.

Bottom line: Silver hasn't yet managed to break out of its thin blue channel (which could be read as a non-confirmation of gold's breakout). If it does break out, like gold it will have formed an inverse head and shoulders, with bullish indications.

GDX (daily)

Upside: The gold-mining ETF has broken in quick succession through its 50-day MA, 200-day MA and the bottom rail of the purple channel, on sturdy volume. RSI and MACD are rising strongly.

Resistance: Recent highs at $49.82 and $51.45.

Downside: GDX's rocket-powered rise has left clear gaps that are likely to be filled in due course. There's substantial overhead volume until $51 or so.

Support: Bottom rail of purple channel, at about $48; rising 200-day MA at $47.34; falling 50-day MA at $45.53.

Bottom line: The gold miners have woken from their slumber and are taking their traditional position ahead of the yellow metal in its current rally. But without a substantial base to propel it higher, GDX is in for a volatile ride.

U.S. DOLLAR INDEX (daily)

Upside: The index has broken only slightly below its green channel, and there is a chance, but only a slim one, that support will hold.

Resistance: Rising 50-day MA, currently at 72.91; top rail of green and blue channels, currently at about 74.8.

Downside: The index appears to be breaking down from its green channel. RSI and MACD are falling.

Support: Bottom rail of blue channel, currently at about 71.

Bottom line: If the dollar's breakdown is confirmed by subsequent action, the green channel could be read as a bear flag, portending new lows.

Gold and dollar still in their channels

Gold has been showing strength, and the U.S. dollar, weakness, but both are still trading within channels that could eventually resolve into a bull flag for the yellow metal and a bear flag for the dollar index.

GOLD (daily)

Upside: Gold has surmounted its 50-day MA. RSI is back above 50. MACD has made a bullish crossover.

Resistance: Top of thin blue channel at around $920.

Downside: No clear indication.

Support: Falling 50-day MA, currently at about $895; rising 200-day MA, currently at about $860.

Bottom line: If gold manages to break out of the thin blue channel at around $920, it will have formed an inverse head and shoulders, with bullish indications for the yellow metal. We'll have to wait and see whether that happens.

SILVER (daily)

Upside: Silver has surmounted its 50-day MA. RSI is back above 50. MACD has made a bullish crossover.

Resistance: Magenta line; top rail of thin blue channel at around $18.10.

Downside: Long uptails on Thursday's and Friday's candlesticks. RSI appears to be rolling over.

Support: Falling 50-day MA, currently at $17.17; bottom rail of thin blue channel; rising 200-day MA, currently at $16.11.

Bottom line: If silver manages to break out of the thin blue channel at around $18.10, it will have formed an inverse head and shoulders, with bullish indications for the white metal. We'll have to wait and see whether that happens.

GDX (daily)

Upside: No clear indication.

Resistance: Falling 50-day MA at $45.94; rising 200-day MA at $47.23. Plenty of overhead volume above $45.

Downside: Weak volume on the bounce to close the gap. The bearish crossover of the 50-day and 200-day MAs could hold GDX down. RSI appears to be rolling over.

Support: This month's low at $42.70; double bottom at $41.61.

Bottom line: The gold miners, which traditionally lead the yellow metal, are looking weak.

U.S. DOLLAR INDEX (daily)

Upside: No clear indication.

Resistance: Top rail of green channel, currently at about 74.7; top rail of blue channel, currently at about 74.9.

Downside: The index failed to reach the top rail of its green channel before declining. RSI is back below 50. MACD is making a bearish crossover.

Support: Rising 50-day MA at 72.8, bottom rail of green channel, currently at about 72.3.

Bottom line: If the dollar index breaks down from its upward-sloping green channel, a substantial decline would be indicated. For the time being, it's still trading within that channel, so we'll have to wait and see.

Gold trending downward

As the U.S. dollar rallies in a well-defined channel, gold and silver are back in their downtrends.
GOLD (daily)

Upside: Long downtails on Thursday and Friday suggest some support near the rising 200-day MA.

Resistance: Fibonacci 38.2% retracement level at about $888; falling 50-day MA, just under the round number at $900.

Downside: Gold is still below its 50-day MA. MACD continues to decline.

Support: Rising 200-day MA, currently at $855; Fibonacci 50% retracement level at about $843; bottom rail of tentative thin blue channel.

Bottom line: Resistance near the falling 50-day MA has held gold down since late March and is squeezing the yellow metal against support at its rising 200-day MA. It won't be long before one or the other prevails and gives a clearer indication of gold's future direction.

SILVER (daily)

Upside: Silver is near the bottom rail of the tentative thin blue channel. Long downtails on Thursday and Friday suggest some support a little above the rising 200-day MA.

Resistance: Flat 50-day MA, currently at $17.23.

Downside: Silver is still below its 50-day MA. MACD continues to decline.

Support: Bottom rail of thin blue channel. Rising 200-day MA, currently at $15.99.

Bottom line: Silver may continue to trade within its downward-sloping channel.

GDX (daily)

Upside: The gold-mining ETF gapped down below $44 on Thursday and may return to close that gap.

Resistance: Falling 50-day MA at $46.35 and rising 200-day MA at $47.09.

Downside: The bearish crossover of the 50-day and 200-day MAs could hold GDX down. MACD failed to make a bullish crossover.

Support: Thursday's low at $42.70; double bottom at $41.61.

Bottom line: GDX, too, appears to be in a downtrend.

U.S. DOLLAR INDEX (daily)

Upside: The index bounced nicely off the bottom rail of its green channel and appears to be bound for the top rail. RSI is rising. MACD failed to make a bearish crossover.

Resistance: Top rail of green channel at about 74.6; top rail of blue channel at about 75.

Downside: RSI is close to levels at which recent dollar rallies have reversed.

Support: Rising 50-day MA at 72.67, bottom rail of green channel; bottom rail of blue channel.

Bottom line: The dollar could be near the end of the current leg of its rally as it approaches the top rail of its green channel.

Dollar plummets again

Gold rose more than $30 from its Thursday low to close just a buck under $900 on Friday, as the U.S. dollar index plummeted by just under 1.5 points from Thursday's high -- which, at 73.87, could be seen as making a double top with the high in May.

Is this a new downleg in the dollar, to be accompanied by a new upleg in gold? Or could the dollar merely be fluctuating within its upward-sloping channel? If the latter is the case, the index needs to respect the bottom rail of that channel, currently near 72.2.

GOLD (daily)

Upside: RSI rising, just above 50.

Resistance: Round number at $900; falling 50-day MA, currently at $901.53; recent high at around $935.

Downside: Gold is still below its 50-day MA. MACD has made a bearish crossover.

Support: Rising 200-day MA, currently near $850; Fibonacci 50% retracement level at about $843.

Bottom line: With a potential inverse head and shoulders beginning to form, the next few days could be critical for gold.

SILVER (daily)

Upside: Silver has risen above its falling 50-day MA. Support again found at about $16.50. RSI rising, now above 50. MACD making a bullish crossover.

Resistance: Magenta line, currently around $17.80.

Downside: No clear indication.

Support: Falling 50-day MA, currently at $17.30. Recent support at about $16.50. Rising 200-day MA, currently near $15.90.

Bottom line: Silver's bounce has been muted compared with that of gold, which the white metal tends to lead at turning points. We'll have to wait and see how the current action plays out.

GDX (daily)

Upside: After a strong bounce on Thursday, GDX gapped up on Friday to close just beneath the conjunction of its falling 50-day MA and rising 200-day MA. RSI back above 50. MACD appears to be making a bullish crossover.

Resistance: Falling 50-day MA and rising 200-day MA, both just above; bottom rail of purple channel.

Downside: The bearish crossover of the 50-day and 200-day MAs could hold GDX back. The gold-mining ETF could return to fill Friday's gap.

Support: Thursday's low at $44.30; double bottom at $41.61.

Bottom line: GDX, too, appears to be close to a turning point.

U.S. DOLLAR INDEX (daily)

Upside: No clear indication.

Resistance: Rising 50-day MA; top rail of green channel; top rail of blue channel.

Downside: The index is back beneath its rising 50-day MA. RSI is back below 50. MACD is poised to make a bearish crossover.

Support: Bottom rail of green channel; bottom rail of blue channel.

Bottom line: If the bottom of the green channel fails to hold, the channel could serve as a bearish flag, suggesting a significant decline to come in the dollar.

Dollar strong again, gold weak again

Gold and silver ended their short-lived rallies and are in downswings as the U.S. dollar found support at the bottom of a new upward-sloping channel and continues to rise within it.

GOLD (daily)

Upside: RSI rising.

Resistance: Round number at $900; falling 50-day MA, currently near $906.

Downside: Gold is back below its 50-day MA. RSI is back below 50. MACD is poised to make a bearish crossover.

Support: Rising 200-day MA, currently near $844; Fibonacci 50% retracement level at about $843.

Bottom line: Gold's failure to stay above its 50-day MA resulted in an abrupt decline that is likely to continue.

SILVER (daily)

Upside: RSI rising. Support found at about $16.50.

Resistance: Falling 50-day MA, currently at $17.36; magenta line.

Downside: Silver is back below its 50-day MA. RSI is back below 50. MACD is making a bearish crossover.

Support: Recent support at about $16.50. Rising 200-day MA, currently at $15.73.

Bottom line: Silver's failure to stay above its 50-day MA resulted in an abrupt decline that is likely to continue.

GDX (daily)

Upside: RSI rising.

Resistance: Flat 50-day MA, currently near $47; bottom rail of red channel.

Downside: GDX has broken down from its steeply sloped blue channel and is back below both its flat 50-day MA and gently rising 200-day MA. RSI is back below 50. MACD is poised to make a bearish crossover.

Support: Double bottom at $41.61.

Bottom line: If the most recent blue channel serves as a flag, like the one before it, GDX has quite a lot of room to fall.

U.S. DOLLAR INDEX (daily)

Upside: The index found support at the bottom rail of its new green channel and is now back above its flat 50-day MA. RSI is back above 50. MACD is poised to make a bullish crossover.

Resistance: Top rail of green channel; top rail of blue channel.

Downside: No clear indication.

Support: 50-day MA, which is flattening out and currently at 72.44; bottom rail of green channel; bottom rail of blue channel.

Bottom line: Dollar's rally likely to continue.