posted on Dec, 7 2009 @ 08:24 PM
Strong performance today with Gold managing a rally off the day's low 1135 to close near the HOD @ 1159. However I wouldn't be a buyer just yet. The
relatively small drop in Comex open interest is an indication that we could
still see further downside...but no more than -10% peak to trough ,
or 1080-1090 max in my opinion.
More buyers than sellers: the ratio will rise - more sellers than buyers: the ratio will drop , but a decline in USD relative to other major
currencies doesn't guarantee a rise in the price of Gold...any more than a rise in USD translates to an equal percentage drop in Gold.
Chart using proxy ETF's through March 09....
The Gold/Dollar inverse remains the backbone of Gold/Dollar ratio but it's not a constant , nor is it tick for tick on a % basis. We can see Gold and
the dollar rise in unison when Gold is being bought more as a reflection of general fear , than as an inflation hedge. Conversely we can see both drop
when more dollars are being sold in the FX than are flowing into Gold.
Identify breakdowns in the inverse relationship by scrolling this perf-chart...examples of sustained divergence: mid-January 09 thru mid-February 09 ,
and the 3mo period September 05 thru November 05....
Back in July 08 when the dollar was much weaker below 72 , Gold was only trading in the 950-960 range. Today the dollar is back above 75 , with Gold
well over 1000. More than just an inflation hedge , Gold assumes it's role as the currency
of choice in times of uncertainty.
And it's not only a dollar issue...Gold is rising in all the majors and in several 3rd world currencies alike.
[edit on 7-12-2009 by OBE1]