Gold Market Update
22 November, 2004
has now made a clear break above the key $430 resistance level
and is in position to advance to the $480 - $500 area. This accords
with the US dollar which, although oversold, looks set to plunge.
1-year chart for gold shows how the price has now broken well
above the resistance at the double-top highs of last winter and
spring. With this hurdle cleared the rate of rise is expected
to accelerate into a "slingshot advance" as the parabolic
uptrend driving the price higher gets steeper.
3-year chart gives us a target for the move at the upper long-term
trendline, in the $480 - $500 area. This is a minimum objective
as this larger uptrend can be expected to get steeper if a dollar
dollar chart from 2001 is placed below the 3-year gold chart
for comparison, note the different time scales. It can readily
be seen how gold's breakout corresponds with the dollar's breakdown
below support at its lows of last winter. Having broken down
below this key support, the dollar now looks set to plunge to
its lower long-term trendline shown on the chart.
1-year dollar chart is a grim picture - not only has the key
support in the 84.60 - 85 area failed, as already mentioned,
but the index also failed to find support at the return line
of a potential intermediate downtrend channel, signalling extreme
weakness. Being oversold did not save it, and will probably not
save it going forward.
gold stock investors remain "spooked" by the underperformance
of gold shares relative to bullion and the fact that shares have,
so far, failed to break out to a new high, as can be seen on
the 3-year HUI index chart below. I believe this is nothing to
worry about and that continued progress by gold will lead to
a sharp breakout above the key 260 resistance level on the HUI.
return of the current Republican administration on November 2nd
was a major bearish development for the dollar. Bush and the
Republican Party may be popular in places like Kansas and Oklahoma,
but they are disliked intensely and even feared and hated around
the world - this is a statement of fact and has nothing to do
with the personal opinion of the writer, but it is a fact that
may contribute considerably to the choking off of funds flowing
to the US. The United States is running huge deficits, and is
now dependant on a massive influx of foreign capital to keep
going. The US may call the shots militarily, but its creditors
now call the shots economically and countries such as China and
Japan could send the dollar into freefall anytime they chose
to if they started to unload the vast quantities of dollar denominated
assets they now hold on any significant scale.
There is an argument that they would be shooting themselves in
the foot if they did so as they would implode their major export
market. Against this must be set the fact that there are many
other fast growing markets to export goods to, especially in
the rapidly expanding Asian region, but the main question now
is how much longer these creditors are going to stand and watch
as the value of their dollar assets haemorrhages on a gargantuan
scale. The danger now, as our charts clearly show, is that there
could be an all-out stampede to dump dollar assets, and possibly
an unprecedented plunge, and I don't think I need to tell you
the effect that would have on precious metal prices.
readers will have noticed a marked increase in mainstream media
coverage of Iran's possible development of nukes over the past
few weeks. This is very similar to the propaganda that was broadcast
about the "weapons of mass destruction" before the
attack on Iraq. It is considered unlikely that the US will attack
Iran in the near future, due to its forces being bogged down
in the Iraq quagmire, so it may be left to Israel, which has
been supplied with ordnance for the purpose, to precision bomb
the Iranian facilities. The most likely gambit will be to first
attempt to deplete the Iranian economy through sanctions. However,
Iran is not Iraq, and any military attack on it either by Israel
or the US, which the Arab world regard as the same entity, could
have dire consequences, including a huge spike in oil and precious
metal prices. We will be considering the consequences of such
an attack in the next Marketwatch Oil, which should go up on
the site within a day or two.
Maund is an English technical analyst, holding a diploma from
the Society of Technical Analysts, Cambridge and living
in southern Bavaria, Germany.
Visit his subscription website at clivemaund.com.[You can subscribe
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as a consequence of trading on the basis of this analysis.
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