Out of curiosity, I ran the monthly chart of gold that you see below. The chart starts with the year 1999 and each bar represents one month’s action. You can see that gold has been advancing along a rising trendline. In late-2008, the rise accelerated, and we see a steeper ascending trendline.
My thinking is that somewhere ahead we’re going to see a third still-steeper rising trendline. (Ed Note: Russell has been Bullish Gold since below $300 and currently holds the biggest position he has ever had since 1950 in Precious Metals)
General Advice: General Advice — Stay with the primary trends. Stocks are caught in a primary bear market, so stay out of the stock market and I mean stay out. Gold is in an established primary bull market, so don’t trade gold, stay on the back of Toro and ride the bull (and ignore all warnings from know-nothing analysts who keep calling for a “gold top”).- Richard Russell Dow Theory Letters (
Gold Prices Holding Up Well
Despite Portugal’s sovereign debt being down graded the eurocrats have managed to calm the waters and keep the euro reasonably steady. Austerity is the word for the Europeans, real or imagined, whereas stimulus is the word for the United States. Interestingly the euro is steady but the dollar has lost 6.8% of its value in just over a month as the spot light once again is focused on the fundamentals of the dollar. Throw in a down grade from the Chinese and things don’t look to bright for the US sovereign debt.
Taking a quick look at the above chart we can see that apart from one bad day at the office, when gold was sold down about $40.00/oz, gold prices are holding up pretty well especially for this time of the year when the summer doldrums usually kick in and volumes drop off significantly. We can also see that the STO is heading north and the MACD looks as though it is also ending its downward slide, which all bodes well for gold prices. If gold can maintain these levels through until September then the stage will be set for a major advance and the forming of a few new all time highs.
Turning to the chart for the USD we can see that it has resumed its trek south, all as we suggested on 09 June 2010 when the USD looked a tad overbought and has since lost about 6.8% in little over a month. The technical indicators have been floored so some consolidation may be on the cards, however we expect it be short lived as the economic recovery in the United States continues to fade and the general mistrust of paper currencies compels investors to re-think their strategies.
The days of a rating agency duopoly in the United States whereby Moody’s and Standard and Poors could issue triple A status to companies on the verge of bankruptcy are now over. Making their debut is this area is the world’s first “non-Western” sovereign credit rating agency, a Chinese company named Dagone (means Big Justice in Chinese) who have down graded the US to AA with a negative outlook. This agency would appear to concentrate more on the ability to pay than the ability to borrow. The dragon has stirred from its slumbers and its influence on world affairs will be felt in every corner of the planet. However, a no nonsense, practical assessment of the state of play will be welcomed by many, especially gold bugs who are contrarian by nature and tire of big government influence in these matters.
Below is the chart we posted of USD which we posted on 09 June 2010 accompanied with a snippet of our commentary.
We could well be too early in making this call but it appears to us that the dollar may now have run its course and will now look to take a breather. As we can glean from the chart, over the last two months the Euro has been under the gun, resulting in a rally for the USD as the preferred currency. Also note the gap that is opening up between the dollar at ‘88′ and the 200dma, which stands at ‘79′. The RSI, MACD and the STO are bouncing along at the top of their respective ranges and sooner or later they will return to somewhere more in the middle of their ranges. So the dollar now appears to be a tad overbought, in our humble opinion.
For now we will be keeping a tight grip on our precious metals but will be taking a serious look at our portfolio of stocks with the view to pruning some of the poorer performers and reinvesting in quality stocks which look to have a brighter future and have responded to the movements in gold prices.
Stay on your toes and have a good one.
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