Gold-USD Decoupling as Gold Approaches $1,000
January is over and what a roller coaster month it has been for the investment community. You may recall that in last month's sector-wide TA update we made a point of noting that the bulls where in for a nasty surprise.
The turmoil in the stock markets hit with full force, and the bulls are still trying hard to fix the damage, but the outlook is still gloomy among investors and it seems that the troubles plaguing the markets aren't over by a long shot.
Strangely enough, up until now we saw the precious metals fall in price every time the dollar strengthened. This past week was different, with both Gold and Silver rising along with the dollar index.
This is important news, because it means that the Europeans are starting to join in on the party, or will at least be further encouraged to. This fresh blood should give the gold and silver price an extra boost during the coming months.
Last week I asked a stock analyst what his thoughts were about inflation and the gold price over here in Europe. He told me that he didn't think inflation would be a problem over here because for inflation to increase, the economy would have to be running at full throttle and with the prospects of it cooling down so would the rate of inflation. His remarks about the gold price where also interesting, saying that gold was only rising because the dollar was falling, meaning that Europeans couldn't make good returns by owning gold.
This confirms again my opinion that the vast majority of the investment community still isn't recognizing what is going on in the Gold and Silver markets. They keep looking at both the metals as just short-term, safe-haven investments for worried investors.
With Gold now also moving firmly higher in Euros, I wonder which one of the investment banks in Europe will be the first to turn tail and look upon gold as a very solid investment opportunity for years to come.
The gold chart is still looking very strong to me, with both the MA's rising firmly along with Gold above them. The back test of the prior high was textbook, and was the perfect spot for sidelined investors to join the bulls if one had missed the first breakout to higher ground.
The chart is fully prepared to rise further towards our target of $1,000, which at this rate will be met within a couple of weeks or even days. The most important level in this chart is the 50 d. MA, a line which has provided support again and again. We need only fear a bigger correction if this MA is taken out to the downside. But as good as things look now, such a decline may be a long time coming.
Silver followed the example of Gold and reached new highs this month, although still very far away from the highs made in the early 1980s. Nevertheless, we should expect silver to catch-up with gold sooner or later.
For now, Silver looks very solid, and we can expect new highs as soon as this coming week. The flag pattern in last month's chart had a price target of around $19 to $20 and I expect Silver to reach this level very soon. As long as Silver remains above the 14 d. MA my expectations are that we should see these targets reached very shortly. On the other hand, a drop below the 14 d. MA would be the first warning signal that a correction might occur before any such targets are reached.
$100 Oil has still not been taken out. The most recent breakout failed and we are back at the support level which has stopped all prior corrections from this level until now.
Last Friday, Oil made a big jump higher attacking the 50 d. MA once again. A breach of this level will clear the way for a new run towards $100. If the technical conditions in the chart are correct, we can legitimately expect this assault on the $100 mark to transpire very soon. The RSI, MACD and DMI (buying power) are all shaping up for a large move higher. All we need is a trigger. A rise of Oil above its 50 d. MA should do the trick
The dollar managed to survive, with a last minute helping hand lifting it higher back above both MA's. For now the rise has been stalled by the magenta line, but the signs are hinting towards a further rally. That said, the bears will be primed and ready for a counterattack if the bulls show any signs of weakness, so it should be quite exciting to watch price movements as they occur over the next several days and weeks.
Copper has established a solid rising channel now that it is back above the support zone. The previously mentioned reversed Head and Shoulders pattern became invalid when Copper fell back below the neckline and formed a higher low.
The chart for Copper is improving fast, with the RSI, DMI (buying power) and MACD all turning positive and indicating that a further rise is the most likely thing to expect. If a correction should occur, both the channel and the support zone are likely sufficient to hold the price and let it gather new strength for another push toward higher levels after a breather. A new test of the highs made around the $375 level seems to be just a matter of time.
All charts are courtesy of www.stockcharts.com.
The above is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at http://www.resourcefortunes.com/. We currently offer a 30-day trial subscription for $2.99.