Gold is rising in a super-trend which has lasted for more than 10 years. The primary trend, however, is accelerating as the debt crisis in Europe evolves. European banks are now in a precarious position and default of a single debtor nation would cause a crisis of confidence. The situation is similar to the 2007 sub-prime crisis which was accompanied by a similar surge in demand for gold.
Two events stand out. In March 2008 the Fed rescue of Bear Stearns reassured the markets, easing demand for gold and resulting in a 30% retreat in the spot price from its peak at $1000/ounce. The second event was the September 15th collapse of Lehman Brothers. Gold surged 20% in a matter of days, as confidence in the Fed’s ability to contain the crisis was shaken, before settling back at $700 by November. It then commenced the current bull run, climbing 170% so far from its 2008 low.
The question is: are we facing a “Bear Stearns” event that will reassure financial markets or another “Lehman”, causing a flight to safety? Current European dis-unity suggests a crisis of confidence and surge in demand for gold.
The daily chart shows a bullish ascending triangle, indicating further accumulation. Breakout above 1900 would signal a fresh advance to 2100*.
* Target calculation: 1900 + ( 1900 – 1700 ) = 2100
The situation can change rapidly, however, and some contrarians believe that gold is over-bought. Reversal below support at $1800 would break the ascending pattern and rising (secondary) trendline. All bets are then off and reversal below $1750 would complete a double top, threatening correction to $1500.
Hey Colin – Congratulations on a great Service and one of the very Few e-mails I subscribe to
For this particular Chart on Gold (priced in USD) clearly the stength of the Greenback
will be limiting (or delimiting !) factor in its future price moves
Gold relative to a Basket of Currencies should continue to do well in the future until the Major Economies
sort out their Fiat currency sqwabbles…..
NVP
Good point. It is really a race to the bottom — just the euro is currently weakening faster than the dollar. All we need is Chairman Ben to toss in a bit of QE next week.
This bullish ascending triangle in Gold is exactly the same we saw over month in the EURUSD chart.
Nevertheless it develloped into a breakdown and really was not bullish.
So we can’t be sure…..
does there come a time where gold is simply too expencive to use,or will it simply inflate prices where it is used.
TREVOR
It hasn’t happened in the last few thousand years, so it is unlikely that gold will ever grow too expensive to use. The opposite may well occur — demand grows as price rises. It happened with Dutch tulips, and can happen with gold.
Methinks we are entering Deflation. If so gold and silver will continue down.