Gold Soars To Seven-Week High
By Ben Lockhart
Summary
- It appears that we have formed or are very close to forming a swing low, and our rally may now have started.
- To confirm the low is in place we need to move higher than $1243, and the rally should then take gold to new local highs.
- Recent announcements show that cracks have begun to appear in the mining industry as a whole, and we may see the supply side economics change (necessarily) in this next year.
In my article a couple of weeks back I stated that although I am firmly in the camp that believe lower lows will be achieved in the gold (NYSEARCA:GLD) price, I don’t think we have achieved the prerequisite bullish confidence levels to elicit such a drop.
Zooming out to the big picture window my view has not changed, and neither has my call for a tradable swing low forming in the $1184-$1206 target range.
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On February 23rd the gold price touched $1190 and found support, rising quickly to $1220 before consolidating and closing this week at a price of $1213. The questions we now need to be asking is whether or not our swing low is in place, and if it has formed, how far can a rally take us?
Is Eurozone Integrity Intact Once Again?
A number of analysts have touched upon problems in the Eurozone and Greece in particular as being bullish for gold. When we add the Swiss National Bank shock de-pegging from the Euro, they certainly have a valid argument.
However, the Central Bank led volatility has now subsided and Greece appears to have negotiated a short term solution to their cash flow problems, so many will likely believe that the danger has passed and the incentive to buy gold has passed with it. In reality, these problems have not been solved; they have simply been put off to be dealt with another day.
To my mind the major development in the Greece saga has been formal acknowledgement within the media that the major Eurozone players accept that Greece will eventually default – they simply want some time to get their houses in order before that particular hammer drops. Whether or not they can avoid a crisis if/when this happens is debatable.
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As I have noted in previous articles, it is not the amount of money being written off that is the danger to the European Union (although it is a danger for sure) but rather the implication of a country being allowed to default and potentially withdraw its membership from the club and thus the currency.
Could this start a chain reaction exodus among other European sovereign states, and what happens to the Euro if this plays out? They say a picture tells a thousand words, and this picture is certainly telling:
Make no mistake, capital is moving out of the Euro in large quantities and would appear to be buying the US Dollar, as evidenced by the EUR/USD exchange rate (NYSEARCA:ERO) making new multi-year lows this week, and the trend looks set to continue.
READ: Stock Traders Flock Back to Gold
A mildly stronger dollar doesn’t necessarily impact the gold price all that much, but a large move over a short period is unlikely to help the gold bulls, and over the next 6 months investors should be on the look out for announcements coming from the Europe as there may indeed be further shocks on the horizon. Source:
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