The recent bounce higher in the US dollar has been a factor in pushing gold, silver, oil, and the S&P 500 lower. Silver and oil were impacted in the harshest way. Investors and traders alike were watching the action unfold across the pond earlier this week. It was seemingly a foregone conclusion that Greece would get the bailout they desired in order to prevent a potentially catastrophic default. The Greek default situation increased volatility in financial markets around the world. In addition to the Greek dilemma, the end of the second quarter and the customary window dressing by institutional money managers only heightened the volatile situation. For the past week or so I have been sitting in cash, watching the price action and waiting for setups that have defined risk and solid rewards. With the heightened volatility I did not want to get involved because a trade in the wrong direction would wreak havoc with my portfolio. As this week evolved, the validity of those concerns was unquestionable. Commodity investors have faced some tough price action recently as gold, silver, and oil have quickly traded significantly lower. Now that we have witnessed some heavy selling pressure set in, particularly in the silver and oil markets, investors want to know where price is heading in the short term. US Dollar Index For the past several months I have been monitoring the US Dollar Index futures in order to gauge the price action in commodities and the S&P 500. The dollar is currently trading at a key support level and the price action in coming days will be telling. While I do not trade solely on analysis pertaining to the dollar, I do look for setups where an underlying is dramatically impacted by its price movements. When the planets align, I will take a trade with a directional bias that is supported by the price action in both the underlying that I'm trading and the US dollar's price action as well. At this point in time, the US Dollar Index is trading right at a key support level marked by the 20- and 50-period moving averages as well a recent low. The daily chart of the Powershares US Dollar Index Bullish Fund (UUP) is shown below: Gold and Silver The recent bounce higher in the US dollar has been a factor in pushing gold, silver, oil, and the S&P 500 lower. Silver and oil were impacted in the harshest manner, but all four asset classes were negatively impacted. Precious metals tend to weaken during the summer and then pick back up in the fall. However, the sell-off in silver the past few months has been breathtaking. For precious metals bulls who entered silver late in the rally the only outcomes were dismal. Late comers to the silver bull market were either stopped out or are currently experiencing significant pain. While I remain a longer term bull as it relates to precious metals, in the short term I expect lower prices to continue. A major factor in my analysis stems from a longer term standpoint; the US dollar has likely put in an intermediate to long-term low. There are a variety of reasons as to why, but suffice it say that from a market-cycle standpoint the dollar has likely achieved a major low and a reflex rally is likely. Issues in the eurozone are far from over and as time passes I expect the impact of fiscal issues rising in countries like Ireland, Portugal, and Spain to have a major impact on US dollar prices. If the sovereign fiscal issues in Europe result in a default or even a more mild technical default, the impact will likely be bullish for the US dollar. The daily chart of the SPDR Gold TR ETF (GLD) and the iShares Silver Trust (SLV) shown below illustrate the key areas which may be tested before the bull market in precious metals continues: I like to have a trading plan in place should my expectations unfold because it removes emotion from my trading. Planning a trade and trading a plan are extremely helpful when investing in volatile markets like silver and gold. In the longer term, I continue to believe that gold and silver will shine, but in the short term more price weakness may be ahead.

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