Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Is Gold Breaking Free?

By

Gold is resisting the decline in the euro (and the rally in the dollar).

PrintPRINT
Gold is weak once again this morning on this silly idea that the Fed is going to be a tough guy because the inflation data is finally beginning to show some of the inflation that's been there all along. Sure, the Fed may be forced at some point by the market to stop feeding inflation with more rate cuts, but the Fed won't be tightening anytime soon with the economy and financial system in the mess it's in.

This is the stagflationary mess I've been talking about for over a year, and now it's finally even beginning to show up in the government's data (which is a feat in and of itself), and stagflation is probably the most bullish environment for gold known to man.

The interesting thing that jumps out at me about gold this morning is that it's finally beginning to break free of its euro and dollar-related shackles. Gold has been rallying in all currencies, including the euro, but it has had a rather tight correlation to the euro over the past six months (and as a result, a negative correlation to the dollar index). This morning, however, that appears to be in the process of changing.

Note that while the dollar index has made a new one-month high and the euro has made a new one-month low, gold is resisting the decline in the euro (and the rally in the dollar) and not following the euro to a new one-month low of its own.

Euro

Click here to enlarge image

Gold

Click here to enlarge image

DXY

Click to enlarge image


Likewise, the metal is also not following the gold shares and breaking out to the downside of its "triangle" on the charts.

If the metal doesn't follow the shares, the shares are going to reverse violently, just as they did in August when they similarly overshot in expecting the metal to decline. Given the XAU/Gold ratio is at 0.21 and near the lower end of its 20-year range, the high probability bet (and also the one that continues to fit the best with the strong physical demand for gold that we are seeing) is that the shares will slingshot back to the upside shortly once the market sees that the metal is refusing to crack, and that's obviously my expectation as well.

HUI

Click here to enlarge image


Gold

Click here to enlarge image
Position in GLD and gold shares.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE