Gold Market Update

By: Clive Maund | Tue, Nov 22, 2005
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Many investors are so used to watching the gold price in US dollars that they seldom look at it against other currencies, but this is a mistake, as what should matter more than anything to investors is intrinsic value. For example, what good would it do you if gold was rising in US dollar terms, but the US dollar was going down the drain. As it happens, gold is going up at a time when the US dollar is rising, which immediately suggests intrinsic strength, and obviously implies that it is rising even more strongly against currencies which are falling against the dollar. The point is that this bull market is much stronger than it looks on the usual gold/US dollar chart.

We'll now look at the charts for gold against various currencies, starting with the US dollar itself. The time period selected for all the charts is 5 years, as this shows the bull market in its entirety.

Gold looks good on the US dollar chart, having broken higher again over the past week, and is now advancing away from the strong support at and beneath $460. The overall look of this chart is bullish with rising moving averages. The strong advance last week resulted in it breaking above the inner trendline shown, which is desirable to obviate the risk of a bearish wedge developing. It is now likely that it will rise toward the parallel trendline, even if it corrects short-term to alleviate the current overbought condition.

If gold looks good on the standard US dollar chart, then it looks super-bullish on the Euro chart. On this chart we see that having broken out above 4-year resistance against the Euro in September, it is now in a powerful uptrend, and broke strongly higher again last week.

We have all heard about recent Euro weakness, so what about gold against some other European currencies? If we now look at gold in Swiss Franc's, the top investment currency we quickly see that it is the same story.

The British Pound? - no need to waste words - the chart quickly reveals that it is the same story.

Looking further afield what about gold against the Japanese Yen? Gold had been firming against the Yen for some time, and started to lift off against this currency back in June, with the advance accelerating sharply in September.

The South African Rand? - after forming a large base area against the Rand, Gold has finally broken out upside over the past couple of months.

Conclusion: even if gold's recent progress against the US dollar has looked a little pedestrian, it is in a roaring bull market against many of the world's currencies, WHICH ONLY BEGAN IN EARNEST THIS YEAR, and given the multi-year incubation of this bull market, it is not likely to end anytime soon. The XAU Philadelphia Gold and Silver index, shown below, broke out above its 2004 highs this past week, a very bullish signal, and the HUI GoldBUGS index can be expected to follow suit shortly and break out above its big resistance toward 260. This combined breakout is expected to trigger powerful gains in gold and silver stocks.

Everything in life is relative, so next time someone asks "How are you?", the correct answer is, of course, "Compared to what?"


Clive Maund

Author: Clive Maund

Clive Maund,

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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