Gold prices rose again this morning, hitting a fresh four-week high of $1642 per ounce. This represents a move of roughly $10 per ounce, which by itself is not terribly impressive given the large single day gains we became accustomed to last year. Look a little closer though and you’ll see some significant changes occurring in gold’s technical picture.
This morning’s gains represent the seventh day of price increases in the last nine trading days. See the Kitco candlestick chart below for reference:
You can see that gold tested the strong technical support at $1562 three times in the last four months. Each time it has held strong, establishing an effective price floor, barring any game changing events in the markets. In the chart above, green marks represent days where gold prices increased and red shows days where prices fell. Before this month, can you pick out the last time we had seven of nine trading days end in positive territory? Here’s a hint: it was way back in August when gold prices were on the march to their all-time-high. This kind of consistent movement creates a sharp contrast to the range bound seesawing we have seen over the last several months. Interesting as this may be, it’s not the whole picture. Take a look at the forexpros.com US Dollar Index chart below.
Since September of last year, gold prices have been stuck trading dead opposite the US Dollar. Gold, stocks, and the Euro were all trading in tandem as they all reacted to risk perceptions and mirrored each other’s movements. Comparing the two charts above, you can see how each strong period for gold through the end of last year coincided with a weak point for the dollar and vice versa. Now look at the last several trading days. See any difference? Gold and the dollar have moved in the same direction five out of the last seven days. Today looks like it’s going to make six.
What all this means is that gold’s fundamentals are finally starting to shine through, allowing it to re-exert itself as a safe haven asset. This is something we’ve been predicting for some time as gold has been in seriously oversold territory for months. This decoupling from the Euro and equities markets is widely seen as a prerequisite for the next significant upward move in gold prices. Now we’re starting to see it happen.
One possible explanation for the timing of this shift is the significant increase in Chinese buying that has occurred. Thestreet.com reported this morning that China has imported over 103 tons from Hong Kong in November alone; a 20% increase over the previous month and a new monthly record. For comparison, that represents a 480% increase from the previous year. This intense demand out of China has grabbed gold buyers’ undivided attention. When the Chinese, the largest non-domestic owners of US Dollars in the world start buying gold, you can bet they are not doing so expecting the price to go down.
Mike Getlin is Executive Vice President of Merit Financial, home to America's fastest growing physical gold IRA company. Please send comments or questions to firstname.lastname@example.org.