In countries where there’s a huge deficit, the only solution to pay back debts is through a devalued currency. Japan has recently intervened to try to devalue the strengthening yen. A strengthening currency to countries with huge obligations can heighten the risk of default, which many countries are facing. Also, a strong currency puts pressure on international corporations that export products abroad. A weak dollar will cause the products to be more expensive to American consumers, hurting demand and growth. More sovereign debt defaults in emerging markets are expected. It appears that many investors ran to the dollar from the euro after the European Debt Crisis. I expect something similar to occur now. The euro is reaching a key resistance level and is overbought. This means a pullback should occur. The US Dollar is extremely oversold and at long-term support. The bearish sentiment on the US dollar is extremely bearish, which indicates a reversal should occur.

As global economies feel the consequences of the United States’ actions, I expect further fallout from weak economic growth and the sovereign debt burdens in Europe. Many investors are pricing in a major move from the Fed. I’m not so convinced, as equity markets are higher and the dollar has moved significantly lower. Investors should realize that unless we see another sovereign debt issue or another bank failure, another major round of easing is unlikely at this point. I believe the investment community is expecting too much from the Fed and it appears the Fed is doing an excellent job stimulating the markets just through speculation of a move rather than the actual move itself.

This last easing from the Fed has met with some more critics and it has definitely increased international tensions. The US dollar has collapsed and is now testing long-term support. I don’t know at this point if the Fed will be so quick to act the next time around unless there’s another deflationary crisis.

Technically the dollar is due for a bounce and investors should look for any pullbacks in gold and silver as a buy point. Instead of the risk associated with buying bullion at these extended prices, many juniors that would be extremely profitable at lower gold and silver prices haven’t broken out yet.

I believe these junior mining companies are presenting a great buying opportunity. Remember on these recent parabolic moves, the faster it goes up, the faster and harder the correction. Last Thursday showed a huge volume reversal day. This indicates to me that some of the smart money are hedging their long gold and silver bullion positions for a correction. Although we may see further upside, the move is about to get exhausted as it has taken out many technical targets and measured moves. Be careful of getting caught up in the hysteria.

Stock prices move in trends.  In a bull market, it is quite often easy to identify the ascending bottoms.  Being familiar with trendlines allows the investor to enter long term bull markets when they are oversold and at key support.  An investor must always be aware of a stock’s underlying long term trend. This can be counter-intuitive and awkward, as most times when it comes down to support you have to think against the market herd and buy when others are selling.  It’s like buying a winter coat in the heat of summer. Gold is on sale, and presenting a low risk, high reward trade, but it requires non conformity with the crowd which is not an easy task for anyone.  Many of us like to be in what’s hot now situations, rather than seeing the bigger picture and entering into a trade when it is uncomfortable.

Gold is now at my buy point of the rising long term trend support line.  GLD touched that line 6 times, which signifies that this trendline is a reliable point of support.  The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here.   It is also oversold.  Continued weakness here and a break below this long term trend would be troubling and highly unlikely.  If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher.  I do not see $1200 as a top in gold as there are no technical signs of a major top.

On the other hand, financial stocks may be finding key resistance here following a low volume rally.  As investors are digesting earnings reports that claim credit is improving and lending is increasing, consumer confidence is weakening and the unemployment rate is still very high.  A jobless recovery is what many are considering we are experiencing.  It seems that this recovery has been good for wall street while main street has not seen an improvement. The financials have found resistance at the 200 day moving average and have now failed four times, significantly breaking through this point of resistance.  Historically speaking, after a few failed rallies a major drop could occur.

At the writing of this article, housing has also had a significant reversal after recent data showing an increase in pricing in some metropolitan areas.  Investors are selling home building stocks on positive news, which  indicates that there is some caution over what the real estate market will resemble after the home buyer tax credit expires.  The chart shows a clear reversal and I expect that the rally in equities will be coming to an end and that gold’s poor summer performance will be different this fall as many weak hands were shaken out.  An explosive fall rally into new highs is expected as I still have a target of $1400 by year end.

Disclosure: I own shares in gold and silver mining stocks.