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The GCI Uptrend ContinuesErik McCurdy Editor's note: The Gold Currency Index (GCI) was created by Prometheus Market Insight in order to track the true, intrinsic value of gold as an international currency itself. This tracking index is a composite of gold prices in the currencies of 10 of the largest economies in the world as defined by GDP. The Gold Currency Index (GCI) closed at a new all-time high today, reconfirming the uptrend from September:  As expected, the uptrend from last summer has been very strong. The correction that developed on the weekly chart after the long-term high in May of 2006 was essentially a cup-and-handle, which is almost always a continuation formation signaling that the next move will be in the same direction as the previous trend:  After the breakout from the cup-and-handle formation in September, the index has moved higher with great conviction. The first short-term correction during November and December was a bullish pennant formation that - like the cup-and-handle - usually terminates with a breakout in the same direction as the previous trend. Additionally, the GCI signaled this breakout one day in advance of the price of gold in US dollar terms. As shown below, the GCI moved decisively above the upper boundary of the pennant formation on December 21:  Gold in US dollar terms, however, remained within the pennant formation during that session before breaking out the following day:  When we developed the GCI, the primary objective was to construct a tracking index that would enable us to readily identify divergences between the intrinsic value of gold and the price of gold in currencies such as the US dollar. Since we began tracking the GCI in early 2005, divergences between it and the price of gold in US dollar terms have always provided meaningful, predictive information, and the December breakout was yet another example. Where Do We Go From Here? As always, there are no certainties in the financial markets, merely possible scenarios and probabilities thereof. Thus, the best that we can hope to do as market participants is to identify - and align ourselves with - the high probability scenarios. Given the current strength of the move from September, odds suggest that the trend will remain up over the coming weeks and months. How high will it go before making a new long-term top? Now that we are breaking out to new all-time highs, it is impossible to say. However, the charts will tell us when the uptrend becomes vulnerable, so we will continue to watch. Jan 25, 2008 Daily GCI updates are provided at Prometheus Market Insight. 321gold Ltd |
