The current short term retracement in the US equity markets is creating the normal shift in capital. Money is once again moving over to the safe haven US dollar creating downward pressure on the more riskier asset classes.

Gold and silver, in particular, have pulled back from the minor rally in the dollar. As the downward pressure in the US markets is expected to continue into late October, gold and silver are anticipated to decline further.

The dollar is targeted for $0.80-$0.805 at the end of this month which should bring gold down to $1675 and silver to $30-$31.

Markets look more positive in November which should transfer money out of the safe haven dollar and back to risk assets.

Bottom line: The present pullback in the US markets is expected to be short lived. However, the impact on the US dollar and precious metals should remind investors how the different markets (stocks, currencies and commodities) are closely connected.

Investment approach: The retracement in gold and silver should provide an opportunity to commodity traders. With QE3 in full swing, this program should continue to drive the dollar lower boasting commodity prices higher. The short term drop in gold and silver prices should offer traders a good entry price later this month.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2012 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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