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A Successful Test of Support
In the last alert I referred to “the growing body of evidence” indicating that “the correction in gold that began after making a new record high in March above $1020 is ending.” Importantly, this point is confirmed by the following monthly chart presenting gold’s rate of exchange against the US dollar.
To explain this key development in technical terms, after making a new record high this past March, gold retraced back toward its previous record (marked in the above chart by the dashed line). Gold did the same thing back in 1978 after breaking above $200 in July that year (marked by the red circle), its previous record high. Gold climbed another 17% through October 1978, and then corrected the following month by testing $200. Support at that level held.
From there gold never looked back. It began a stellar advance that took it to $681.50, its month-end close in January 1980, the level that was just successfully tested.
The big difference between now and back then is the time needed to re-test support. The correction lasted only one month in 1978, but is now already eight months old. There are a number of reasons for this different result, but one is not the gold cartel. It was active back in the late 1970s too, dishoarding 775 tonnes from the International Monetary Fund in a vain and useless attempt to make the dollar look better by trying to cap the gold price.
The clear conclusion is that governments, even when they coordinate their effort, cannot in the end stop the market from bidding up the price of gold. So it is logical to expect a new record high for gold soon against the US dollar. It is noteworthy that gold closed this past month at new record highs against the British pound, Canadian dollar, Indian rupee and South African rand.
The driving force to exit national currencies and to buy gold is the same now as it was in the 1970s. Gold is better money than national currencies.
Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk, alert@goldmoney.com
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