Gold Explodes On S&P Downgrade Warning

Who would have thunk that the one beneficiary of an insolvent US (with both bonds and stock futures plunging) would be gold. Oh wait…

04/18/2011 S&P just revised its US outlook to negative. EURUSD surges on what can be seen as revolutionary news..

Richard Russell’s Analysis from Friday:

In the meantime, the real news is the new record high in gold. The chart below shows the bullish ascending triangle in gold and the breakout to new highs. I thought that gold would come down to test is breakout level at the horizontal blue line, but evidently gold is so strong that instead of testing it breakout level (which is now support), gold went on to register new all-time highs. RSI is nearing the overbought level, and MACD remains bullish. Gold is trading bullishly above its 50-day moving average and far above its 200-day MA.

The daily chart of silver below shows silver in fantastic rising channel. RSI is severely overbought, and MACD remains in its bullish mode. Meanwhile, silver continues to climb, recording its highest levels in 31 years. Those who have bought silver and shorted gold have enjoyed a profitable play, but now’s the time to be careful with this trade.

The chart below shows the ratio of gold to silver. When the ratio descends, it shows that one ounce of gold buys fewer ounces of silver (silver gaining strength over gold). RSI indicates that this ratio is now overdone, so we might expect a short-term correction in favor of gold.

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