Here is what top Citi analyst Fitzpatrick had to say, along with some powerful charts:  “Focusing on the US dollar, and particularly the dollar index, we do feel the setup is very similar to what we saw during the April/May period of last year.  We are testing this area which we believe is the pivotal level around the 80.15 area, which when we finally broke through it in May of this year gave us the next leg higher on the dollar index.

This lift in the dollar in May eventually moved the index above 84.  So we have been approaching the pivot area, but so far we have not been able to decisively push through it.  If and when we break through, that will open up the way for a push higher in the dollar again.  It should then test the year high at 84.

“Turning to the euro, the present pattern we are seeing in the euro looks like a topping pattern.  If you look at the April/May period and the other circled zones, you can see some areas of the chart which resemble double-tops.  During declines in the euro we have typically seen sharp down-moves followed by consolidations.

We still believe the trend lower is still intact.  We are looking for this area at 128 - 128.30 to give way, which will signal the euro is on line for the next move lower.  We believe that next move lower is likely to set another low in terms of the downtrend.  So, effectively, a move down that is going to take us to and below 1.20.”

“Moving to gold, our bias remains that we are in a consolidation and this consolidation will eventually give way to the topside again.  A lot of people when we mention this might say, ‘Well that seems counterintuitive.  You have a setup which you believe is constructive to the dollar, yet at the same time you are seeing a situation where effectively you believe the US dollar will lose ground vs gold.’

Our answer to that is number one, it’s certainly not unprecedented.  If you look at where we are on the dollar index, it is at very similar levels to where it was earlier this year.  If you look at the dollar index, the dollar was able to breakout around the 11th through the 14th of May, yet gold actually put in its lows in terms of its corrective move about three or four days later, and subsequently started to move higher (see chart below).

If you look at where we are today, the dollar is at the same levels on the dollar index that we saw back then (in May), but gold has moved from the lows near $1,500, to near $1,720 or $200 higher (see chart above).  So there was no net movement in terms of the US dollar, yet gold saw a $200 advance.

At the end of the day, our view is one of gold outperforming all paper currencies.  It’s not a dollar view, it’s a gold view.  While we continue to see short-term vacillations in terms of which currencies are the weakest, overall gold has been outperforming all of the paper currencies and should continue to do so in the future.”

I would just add to what Fitzpatrick has said here that if you look at his first gold chart it shows the arrow at the end of the chart pointing to a down-move into the $1,660s on gold.  Today we are finally getting that down-move Fitzpatrick has been warning about for some time now.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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