GoldMoney Alert - 13 January 2008

Uncharted Territory

Both gold and silver are displaying real power. Silver is trading at a multi-decade high, but gold is in uncharted territory. Never before has it been this high in nominal dollar terms (i.e., its price is not adjusted for the dollar's loss of purchasing power from inflation). Gold is also at a record high against the euro.

We can see in the following chart that gold has broken out of the small pennant formation it created in November and December. With this very tight pattern (and it is useful to note that tight patterns like this one are bullish), gold simply consolidated its big gains made since August.

Gold is now climbing within its uptrend channel, but the reality is that it can go anywhere. Because gold is now at a new all-time high ground, historical channels like the one drawn here (the current one with the purple parallel lines) have little significance. I have therefore stopped the trend channel at the old high of $850. Given that gold is in uncharted territory, its long-term chart becomes more important.

This weekly chart of the gold price is bullish. Gold broke out of the flag pattern (marked by the green parallel lines) in 2006, and temporarily retested support shortly thereafter by moving back to the break-out point. Support held, and gold has been climbing ever since. To put some numbers to this observation, since reaching its post-breakout low in June 2006, gold has risen on 57 of the past 82 weeks, which is 69.5% of the time. Gold's appreciation on up-weeks was $13.82 on average. The average drop on down-weeks was $18.79, which is important to note for two reasons.

First, what goes up, also comes down. No market moves in a straight line, and gold is an example of that truth. Second, those big down weeks have proven to be good buying opportunities, which is something to keep in mind for down-weeks in the future.

Silver is starting to answer the question I have been asking: Is history about to repeat? The above silver chart doesn't fully answer this question yet, but it does illustrate an important point. Namely, it is clear that history is still repeating. Silver's price movement within this latest pennant is consistent with those in the first pennant. All that remains now is to see if silver soars from here, repeating the big gain it scored after breaking out of the earlier pennant.

To conclude, the bull market in the precious metals is alive and well.

Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk

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