A review of gold in various currencies
David Fuller's view Significant
moves in the price of gold - up or down - occur against all fiat currencies.
Therefore a review of bullion's current action in terms of various currencies
seems timely.
Most
of us monitor the price of gold mainly in USD (weekly
& daily), especially those who trade
futures contracts. While there is an overall consensus among gold analysts that
the fundamental story of bullion's remonetisation in the eyes of investors remains
intact, not least due to our brave new world of QE, the yellow metal has performed
in the manner of a 'risk asset' following its accelerated peak at $1921 last
September.
Therefore
it is hardly surprising that sentiment towards gold has become considerably
more cautious over the last several months. Anyone looking at the price charts
above can see that gold is near an important level of previous support established
by the spike lows in September and December 2011. One does not need to be a
psychologist to recognise that sentiment would deteriorate further if gold breached
those lows. Meanwhile, people can also see that the rally highs are declining
and bullion is currently beneath its 200-day MA which has also turned downwards.
So, what
is the outlook for gold quoted in USD and other leading currencies?
My
previously stated hunch is that gold has largely completed its distribution
stage during the first half of a lengthy medium-term corrective phase, similar
to what we have seen following
earlier accelerations above the MA over the last decade. If so, we are now
in the early stages of the accumulation phase for gold, prior to an eventual
resumption of the secular uptrend circa 2013.
However,
this can only be confirmed with hindsight, requiring gold to not only hold its
recent lows but also rally significantly above the MA, establishing a new short-term
uptrend within the present range. An eventual, sustained push above the last
two rally highs near $1800 would provide crowd-convincing evidence that bulls
were back in charge.
In that
event, the current platform of support which appears to be forming would be
more than capable of sustaining another significant upward leg in gold's secular
bull market. For this to occur, as I suspect it will, gold will have to regain
some of its previous 'safe haven' status. I believe this is largely a psychological
transition and there is nothing that builds confidence more than a clear uptrend.
If my
analysis is correct we will see confirming and probably leading evidence of
gold's next advance in its price action against other currencies. It will not
have escaped your attention that the USD has been one of the strongest currencies
over the medium-term. You can see this from the US
Dollar Index which has been ranging higher over the last year. This is due
primarily to its haven status during troubled economic times and also Wall Street's
relative strength during the stock market corrective phase. USD strength is
also confirmed by declines in both the Asian
Dollar Index and particularly the Latin
American Dollar Index.
You can
see the influence of these currency trends in weekly charts showing the performance
of gold in DXY, to a lesser extent
when shown conversely in ADXY and
particularly LACI. Incidentally, the
US dollar looks short-term overextended so we should not be surprised if it
gives up some gains as and when global economic concerns wane.
Against
individual currencies, note gold's overall ranging, step sequence upward trend
against the Swiss franc. This remains
reasonably consistent and as delegates at The Chart Seminar know, we regard
a consistent trend as a "trend in motion", meaning that there is no
evidence that it is over. Since CHF has been pegged to EUR since last September,
gold in EUR currently shows a similar
pattern and the rising lows both previously and within the current range are
a sign of accumulation.
Gold's
gathering upward bias is even more evident against recently soft currencies
such as the Indian rupee and the Brazilian
real, where the overall upward trends are resuming. Note also its strength
against the South African rand since
last September.
Bullion
looks less convincing against firmer currencies such as the Japanese
yen, Chinese Renminbi, Singapore,
Australian, New
Zealand and Canadian dollars, although
it has steadied recently. You will find charts of gold in plenty of other currencies
in the Library, in the "Relative Charts - Commodities & Indices in
Currencies".
Overall,
I find the technical evidence encouraging although not yet conclusive. If correct,
gold should be moving out of its lengthy medium-term corrective phase and into
a ranging recovery, eventually followed by a surge for a few months prior to
the next medium-term peak and lengthy pause. Inevitably, gold will be strongest
against what prove to be the weakest fiat currencies.
The conservative
way to participate is in a bullion fund. Gold mining shares are considerably
more volatile and risky, but are arguably oversold, so there would be some very
strong recoveries as the yellow metal attracts a renewed following. I will participate
mainly in futures via UK tax-efficient spread-bets, favouring buying the dips
and lightening on rallies, prior to leveraging up behind trailing stops if /
when another acceleration phase commences.