A Week of New Multi-Decade Highs

Both gold and silver made new multi-decade highs this past week. On Thursday gold made its highest close since January 6th 1981. Silver ended the week on its high, which is a level not seen since September 23, 1983. These new highs are clear evidence that the bull market in the precious metals is alive and well.

As we can see from the following chart, silver continues to outperform gold. The gold/silver ratio closed Friday at 48.9.

This chart suggests that the gold/silver ratio is heading toward 40, a level last seen in early 1998 after Warren Buffett announced his huge purchase of silver. It is impossible to say how quickly that level will be reached, but this downtrend in the ratio is now well established.

I've been silent recently about the US dollar. Even though I haven't said much about it, I have been watching it intently. Take a look at the following chart of the US Dollar Index.

The Dollar Index remains within a multi-year downtrend. More importantly, look at the recent action of this index. Note that the index is within the uptrend channel that has marked the bear market rally it began early last year. But over the past few months, this index has been struggling. In fact, it is starting to look downright 'toppy'.

It's too early to say, but the Dollar Index looks like it is about to break down. We need to watch this chart because if the Dollar Index does break down, it will add more fuel to the bullish fire that has been driving gold and silver higher.

There are already enough bullish fundamentals underpinning both gold and silver. So the precious metals don't need more bullish news for them to climb higher, but if the dollar starts falling again against the euro and other major currencies, it will be indeed be more bullish news for gold and silver.

Published by GoldMoney
Copyright © 2006. All rights reserved.
Edited by James Turk, alert@goldmoney.com

This material is prepared for general circulation and may not have regard to the particular circumstances or needs of any specific person who reads it. The information contained in this report has been compiled from sources believed to be reliable, but no representations or warranty, express or implied, is made by GoldMoney, its affiliates, representatives or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report reflect the writer's judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law neither GoldMoney nor any of its affiliates, representatives, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from any use of this report or the information contained herein. This report may not be reproduced, distributed or published without the prior consent of GoldMoney.