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Lack of Confidence

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The Conference Board's consumer confidence number fell to 114.3 in August from a revised 116.3 in July, and well below expectations for a rise to 117.00. A deteriorating job market continues to weigh on consumers minds, and may eventually affect their spending habits.

The markets aren't taking the news well. The Dow is off 78 points, and 28 out of 30 Dow components are lower. The situation isn't much better for the Nasdaq-100 with 91 stocks in negative territory.

Biotechnology and software stocks are getting hit the hardest, with semiconductors a close third. Utilities and financials are the only sectors in positive territory, just barely.

Gold and Silver Index Daily Chart

The Gold and Silver Index (XAU.X) is down 1.27% today, and testing support at 56.41. The index had completed a small double bottom, but after failing crack resistance around 59, has pulled back to test the top of the pattern. Part of the drop is due to the lackluster market, but more of the drop can be attributed to a stabilizing U.S. dollar.

U.S. Dollar Index Daily Chart

The US dollar has dropped precipitously since June, taking out support on the way down. Up trends, moving averages, retracement levels, nothing looked like it could stop the dollar's slide. 113 finally stepped up and has offered some support, even in the face of declining consumer confidence. This is a 61% retracement of the gains posted in 2001, as well as a February high. The dollar might be able to bounce as high as 114.91 before it meets resistance. If it does, gold stocks could continue to see some selling pressure until the bounce ends.

Jeffrey Canavan
Assistant Analyst

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