In my September 9 Money and Markets column I showed you this gold chart:
Source: www.decisionpoint.com
On that date, I said, “This breakout of a huge triangle is a clear technical buying signal.” I added that the minimum price target of this triangle formation was roughly $1,100. This was well above major resistance in the $1,000 area, thus hinting that another major breakout and buying signal would take place soon.
Well, that’s exactly what happened last week!
Gold Hit 1,059 …
Triggering Another Major Buy Signal
Take a look at the weekly chart below. It gives you a good perspective of how important this breakout to new high ground actually is. As you can see, it signals the end of a medium-term correction that began in March 2008 and the beginning of the next medium-term up trend of a secular bull market that started in 2001.
Source: www.decisionpoint.com
The minimum price target of this huge consolidation pattern is $1,300. And I believe much larger gains are certainly possible.
Also consider this: Four weeks ago the Hulbert Gold Newsletter Sentiment Index (HGNSI) stood at 25.2 percent. Now, four weeks later and gold nearly $100 higher, the HGNSI has actually fallen to as low as 18 percent! A rising market accompanied by a declining number of bulls is a rare development. And it’s clearly bullish.
Longer Term Fundamentals
For Gold Are Very Bullish, Too
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| There are many fundamental reasons to own gold. |
Besides the technical buying signals I’ve given you today, I want to repeat the major fundamental arguments for owning gold:
- As a consequence of the current financial and economic crisis, government debt is going through the roof — not just in the U.S., but all over the world.
- Worldwide central banks are printing money like there is no tomorrow.
- Gold demand is rising due to wealth creation in emerging economies where gold still plays a large role as a store of value.
- Gold demand is even rising in the West as more investors doubt the wisdom of central banks and governments.
- Gold supply is stagnating or even slightly shrinking — despite the metal’s price rise since 2001. This is because it’s getting ever more difficult and expensive to get gold out of the earth.
- Finally, central bankers who were eager to sell government gold at much lower prices a few years ago, are getting increasingly reluctant to keep doing so. Emerging market central banks are even buying.
As long as most of these catalysts for higher gold prices remain in place, I expect the long-term bull market to continue. And much higher highs are very likely.
Best wishes,
Claus
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