Hi TJ, As Rod might say, "submitted for your approval....." Comments?
Dr. Clive Roffey
Let me ask you a question. What does the dollar gold price really represent? Or for that matter what does any share or commodity price actually represent? I know that you think this is a stupid question, but humour me and consider the answer.
"Come on Clive, what a silly question. Any price represents the value at which buyers and sellers are willing to trade. That is what determines the price of any object."
I agree, this answer is correct, BUT it only addresses half the solution!! When the dollar price of gold rises what does it really mean? Sure the value of gold becomes more expensive and the yellow metal has a greater worth. But this again is only half the answer.
All price data, irrespective of the commodity, is a relative strength assessment. A rising price of gold indicates that gold as an entity is outperforming the currency in which it is quoted. Even a share price is a relative strength analysis. A falling share price means that investors are better off in the currency (cash) than invested in the company.
When we view the gold and silver price in terms of relative strength it opens up a different angle upon interpretation of rising and falling prices, especially in the precious metal markets that are proxies for fiat currency.
Now that bullion has breached the critical $398 overhead resistance I expect to see it again attack the extremely powerful 15 year resistance at $430. A move above that level will trigger the upside counts to over $600. A move to $600 indicates that gold will outperform the dollar by a margin of 50%.
Such a move is not just a gain in gold value but a loss of purchasing power for the dollar. This is why the assessment of gold against all the currencies is of such importance. A rising price of gold against the dollar, Euro, Sterling, Yen and Rand indicates that investors prefer to hold gold above all the trading currencies. But this is even more critical when we consider the price of gold in Swiss Francs. This is not a commercial currency, but the world's currency of last resort. Why should a non interest bearing yellow metal be the preferred medium of investment to all the commercial currencies and particularly to the investment currency of the Swiss Franc?
I have introduced this problem several times before when I have analysed the chart of the gold price in Swiss Francs. The bottom line is that for gold to become the dominant force in global investment there has to be an event, or series of events, that cause investors to dramatically alter their complacent historic portfolio strategies. You decide what will be the cause. I will stick to the chart data.
The major resistance 15 year level on the weekly dollar gold price at $430 is easy to see. But that is not the real driving force behind this data. There is a second down sloping trend from 1989 to 2001 that forms the second trend of a massive flat top broadening pattern. Notice how the gyrations inside this format become more violent as the pattern progresses. This chart shows why the $430 level is of such importance to the onward progress of the bullion price.
The monthly long term chart of gold is even more enlightening. Note that the red RSI line remains well inside its uptrend and that the recent corrective period has failed to push the RSI under the flat support line. This is an extremely powerful signal and indicates that the next move is likely to be long and strong.
When we expand the data to view the last 18 months of daily trading there is a powerful resistance / support line. This really is a critical line. It needed a push on this daily chart by bullion to close above $398 to force the upside breakout. This occurred on Thursday last week. I must now look for a short term attack on the big $430 15 year resistance. This time I do not expect it to present much of a problem.
I revert back to the weekly data on the gold price, this time to detail the reverse divergences on the RSI. Note that the RSI made a low under the previous lows in March 2003. The price refused to mirror this low and remained well above its previous dip. The same effect happened in May this year. The RSI made a new low that the price refused to confirm. This effect is reverse divergence and signifies that the main trend remains intact and that there is still further upside to come.
I must conclude that the dollar gold price has broken above a critical resistance at $398 and is ready to attack the main 15 year resistance at $430. The ancillary oscillators indicate that the next move is likely to be extremely strong.
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