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Gold "Off the Charts" Signals Sharp Global Inflation Ahead

Commodities / Gold & Silver 2009 Oct 07, 2009 - 07:23 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD touched fresh all-time Dollar highs in the first hour of London trade on Wednesday, recording an AM Gold Fix at $1047 an ounce before easing back as European stock markets retreated from new 13-month highs.

"Having rallied 'off the charts'," says Barclays Capital's chief technical analyst, Jordan Kotick, "we are left to resort to projections and extrapolated trendlines to forecast where the move might stop."

"[Uptrend] channel resistance currently is at $1,370; history suggests a run at $1,500."

"The current gold price keeps the pressure higher," says the daily note from bullion bank Scotia Mocatta, "with our new targets at 1050 and 1090."

"Gold is rapidly approaching major resistance at 1057," says Commerzbank's chart analysts – bearish on gold since this current move began five weeks and $100 ago – "the top of a 38-year channel" linking the last top of March 2008 with the previous peak of Jan. 1980.

Over on the forex market on Wednesday, the US Dollar bounced from Tuesday's sell-off, but was outpaced once again by the Japanese Yen.

The Yen pushed towards new multi-month highs against everything except the Australian and Canadian Dollars.

The surge in those "commodity currencies" kept a lid on gold prices for domestic investors, but gold priced in Euros, Sterling and Swiss Francs meantime rose to new 7-month highs.

"[Gold] is by no means unstoppable," cautions Kotick at Barclays Capital, "as none of the charts show prices [in non-US currencies] concurrently pressing against their respective all-time highs."

Measured against a basket of the world's top 10 currencies, however, gold ended Tuesday more than 3.0% higher, jumping to its best level since the records set in late Feb. '09.

BullionVault analysis today showed its Global Gold Index rising within 3.0% of the all-time high.

"Gold is a forecaster of inflation instead of a coincident indicator," said  based on its surge before 1980, said Dan Greenhaus, chief economist at institutional Wall Street broker Miller Tabak & Co.

"There's nothing right now that says inflation will break out to all-time highs. But gold can move considerably higher from here. Should growth return, inflation will return."

A report published by trade-marketing group the World Gold Council in late 2005 confirmed gold as a leading indicator of inflation across five decades of data, with US Producer Price inflation lagging moves in the gold price by some 12 months.

Citing gold as a safe haven and portfolio diversifier in a new report issued Tuesday, "Gold is unique in that it does not carry credit risk," the World Gold Council says. "[It] is no one's liability.

"And unlike a currency, the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation."

On the data front early Wednesday, Japan's Leading Economic index came in weaker-than-expected for August, as did Eurozone GDP growth, German factory orders and UK shop prices.

Government bond prices rose as Western stock markets eased back, pushing the yield offered by 10-year US Treasuries down to 3.24%.

The Treasury today auctions a further $20 billion-worth of 10-year debt. Economists forecast last month's budget will show the first September deficit since 1991.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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