December 13, 2009 – In my last commentary I asked “What’s next for gold?” Answering my own question, I noted that “$1200-$1400 is a reasonable target for the end of this year, but first, it seems likely that gold will re-test support.”
In fact, gold kept climbing to above $1200, so my timing was off. Only now are we seeing the re-test of support that I had expected. Gold has fallen deeper than I envisioned, but it is clear from the following chart that gold’s technical position remains very bullish.
The above chart is very powerful. Note the following bullish features:
1) By hurdling above $1000, gold broke out from the ‘head & shoulders’ pattern (highlighted by the green lines) it formed over the past couple of years.
2) I have extended the right trend-line of gold’s base (the purple dashed line), and gold remains above this uptrend line.
3) Gold remains above its 200-day moving average.
All of these points make clear that gold remains firmly within a major long-term uptrend, which is the salient fact. The short-term ups and downs are merely noise that can easily distract us from the big picture. Gold is now in the second stage of its bull market, so the volatility of the past couple of weeks is to be expected. Increasing volatility is one of the traits of a bull market’s second stage.
In conclusion, last week’s shake-out did nothing to alter gold’s major long-term uptrend, which is not surprising. The problems confronting national currencies continue to deepen. They continue to be debased, so a lot more erosion of their purchasing power is to be expected.
For example, The Times of London on December 10th forecast that governments from 19 of the G20 countries will suffer fiscal deficits in 2010. Only Saudi Arabia is expected to operate with a surplus, and leading the list of the worst fiscal offenders are the UK, Japan, US and India – each is expected to rack up a deficit of 10% of GDP or greater.
The amount of new debt that will be created in 2010 by the G20 means central banks around the world will be running their ‘printing presses’ day and night, debasing currencies at breakneck speed. Next year promises to be another big year for gold.
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