Gold breaks out as Cold War 2.0 intensifies

  • Today’s AM fix was USD 1,317.50, EUR 984.02 and GBP 784.23 per ounce.
  • Yesterday’s AM fix was USD 1,302.00, EUR  973.53 and GBP 772.98 per ounce.
  • Gold climbed $5.20 or 1.42% yesterday to $1,311.60/oz and silver fell $0.08 or 1.16% to $19.96/oz.

 

Gold is up nearly 2% this week on safe haven buying, its best weekly performance since mid-June. Gold hit three week highs overnight at $1,322.60/oz, having started to push higher in U.S. trading hours yesterday due to tensions with Russia and the renewed bombing of Iraq.



Gold in US Dollars - 2 Years (Thomson Reuters)

Gold is flat in London this morning after gold bullion in Singapore consolidated on yesterday’s gains and crept marginally higher. President Obama’s authorization of air strikes in Iraq saw stocks fall globally and led to demand for haven assets - the Swiss franc strengthened as did oil and gold.

Traders were surprised that prices were capped from further gains and there was not more of a safe haven bid and more technical related buying after gold broke above the 50, 100 and 200 day moving averages.

Silver is outperforming again and is up 0.9% to $20.13, while the platinum group metals are also higher with platinum up 0.4% to $1,489 an ounce.

Palladium added 0.7% to $867 an ounce. It is consolidating near its 13-year nominal high of $889.75 reached on July 17. Palladium has risen 19% this year due to increased industrial and investment demand and due to concerns about supply from South Africa and especially Russia. Palladium has risen 19% this year due to increased industrial and investment demand and due to concerns about supply from South Africa and especially Russia.

Gold remains in its summer doldrums despite the western world sleepwalking into another major conflict with Russia and potentially another World War.


Gold’s Bullish Technicals As Breaks Out Of Falling Wedge

Gold is nearly 2% higher this week and its technical position has further improved.

On Wednesday, gold broke out of bullish descending wedge chart pattern that has formed in recent months. The falling wedge is a generally bullish pattern signaling that a market will break upwards through the wedge and move into an uptrend.

Another buy signal for gold came when gold rose above the 20 EMA and 50 EMA (exponential moving averages). Also positive is the fact that the price momentum oscillator (PMO) has turned up (see charts), indicating that a positive momentum shift has occurred.

 

 

As Sharelynx noted overnight:

“Stepping back a little we see the larger picture. A strong break here above the red line will indicate that the bear is over & the new bull alive & well. With the price oscillator a move above 10 (see below) will see the gold price above $1,400 & be a major buy signal.”

The weekly PMO is also climbing meaning that there is positive momentum in the intermediate to long term. Therefore, there is a good chance that we are looking at a new rally in gold and the next leg of the bull market. Especially given the huge uncertainty in markets today - which looks set to continue. 

This uncertainty has led to significant falls in many stock markets in recent days.

Gold is again showing its inversion correlation to stock markets and rising when they fall. This can clearly be seen in the Dow Gold Ratio - an important indicator that we frequently look at. We can clearly see a trend reversal here as the Dow Gold Ratio has fallen back below 12.5 (DJIA 16,368 / $1,319 per oz) and has fallen out of the recent wedge formation suggesting a movement lower.

U.S. stock markets and many stock markets globally are overvalued on a variety of benchmarks  after huge gains in recent months. Gold on the other hand is undervalued after a sharp correction and period of consolidation in recent years. We continue to favour the Dow Gold Ratio chart as a good indicator as to when the gold bull market might end. It is likely to reach the levels seen in 1980 (see chart), close to  1:1 or the Dow at between 3,000 and 10,000 and gold at between $3,000/oz and $10,000/oz.

This will be an indication that the gold bull market will be in its final innings. Provided of course we do not return to some form of gold standard in a coming global currency reset in which gold is revalued to a new much higher fixed price. It is also important to note that there was a 2 year period in the 1970’s when the Dow Gold ratio bounced higher after years of falling, prior to the secular, long term trend reasserting itself (see chart).

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