Posted on 01/27/2010 1:37:03 PM PST by SeekAndFind
Gold’s Chart is Ugly in Multiple Currencies
Most commentators living in the states have made a big ado about Gold breaking to a new all-time nominal high back in the fall of 2009. I didn’t buy into the mania and wrote an article titled Three Reasons Gold Might be Making a Head Fake that was published on November 10, 2009.
The primary point of the article was that Gold was struggling to hit new highs against most major world currencies. Sure, the precious metal had rallied impressively when denominated in Dollars. But you have to remember that the Dollar lost roughly 16% of its value in 2009. For that reason, I chose to look at how Gold was doing when priced in Yen, Euros, and Swiss Francs.
At that time I noted that Gold had failed to break to new highs in these currencies. The new highs DID eventually come in late November, but ALL of them were immediately followed by strong retrenchments/ corrections, confirming my views that Gold was in fact making a headfake and not ready to blast into the stratosphere as many Gold bulls predicted.
Gold then promptly plummeted from $1,225 to $1,100 in about two weeks’ time in early December. With the precious metal (denominated in Dollars) continuing to correct today as the Greenback strengthens, I thought it was worth reviewing how the precious metal is faring for those outside the US.
Let’s take a look.
Gold, as priced in Euros is on the literal edge of a cliff. If the precious metal DOESN’T bounce strongly off of its current support (7.60 or so) or enter a lengthy consolidation period, we could be seeing Gold (priced in Euros) down around 7.00 or even 6.50 relatively quickly (much like the gut-wrenching drop that occurred in early 2009). This chart is not a pretty site.
What about Yen?
Here we see Gold (priced in Yen) making what looks like a clear double top. This too is bearish. And with Gold slicing through support at 10.00 the next real support is down around 9.50 or even 9.00. Again, not a pretty site and we need to see a strong reversal if Gold (priced in Yen) has any hope of maintaining its gains since July 2009.
And finally, Swiss Francs:
This chart actually doesn’t look too bad. Gold (priced in Swiss francs) looks to have held support and is not entering a consolidation stage. However, I do want to point out that if Gold breaks below support, there’s a long drop down to 10.50 or even 10.00 (much as is the case in the Euro). So this chart, while not as bad as Gold priced in Euros’ could get very ugly very fast if Gold weakens against the Swiss Franc.
Thus, we see that Gold priced in multiple world currencies has formed several very ugly charts. This does not bode well for the Gold bugs as it indicates that the recent correction in the precious metal is not solely related to the US Dollar’s strengthening. Instead we see paper money in general outperforming the precious metal.
This could be signaling an end to the stimulus/ easy credit that has fueled much of the rally in commodities and stocks over the last year. But all of these charts bear watching in the coming weeks.
I’ve been bearish on GZ for some time, but as long as the correlation to the AUD holds that’ll be fine for me. :)
in another article the poster mentioned that the fed was pulling money out of the system while holding interest rates down.
I have also had a really hard time believing sales people. Usually when they get louder I get MUCH MUCH more cautious. The more I hear “Gold will break $2000” the more my mind says “we need to move this product yesterday”.
Amazing. Gold has gone up for the last nine years and has beaten the tar out of the S&P. Yet, there’s never any lack of naysayers telling investors that gold is heading for a fall.
No paper money will hold its value forever because ALL governments rise and eventually fall. My Weimer Republic 1-million mark notes won’t buy squat. Neither will Zimbabwe notes. Even if the value of gold coins dropped to nothing [that isn’t going to happen], I would still have the gold in my hand. If the dollar drops to nothing, all I will have is worthless dirty paper. Which would you prefer to be stuck with, “worthless” gold or worthless paper?
I particularly liked the description of gold moving back to $1100 as a ‘plummet’.
Who are the filthy rich technical analysts? Many investment techniques have been proven successful over time, but in my opinion, technical analysis is just gambling. You may as well flip a coin to determine if the price is going to go up or down.
Is there a reason why financial planners always have to tell you “past performance does not guarantee future results?” Why do technical analysts insist that past performance is everything?!?
If the precious metal DOESN’T bounce strongly off of its current support (7.60 or so) or enter a lengthy consolidation period,
Wonder why he didn’t run those charts back to 2001?
No worries. Sell into strength, check fundamentals, buy/reallocate on the pullbacks, repeat...
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