Inter-Market Analysis
Chart Presentation: Gold
Gold fascinates us. It's role as a store of value means that it is sensitive to interest rate trends while its position as a pure commodity ties it to raw materials price trends. It is pushed and pulled by movements in the dollar and the subject of some very serious conspiracy theses.
Gold tends to move 'with' the Swiss franc. At right we show gold futures and the Swiss franc futures along with related channel lines.
While gold tends to move 'with' the yen as well, that likely has more to do with the dollar than the yen. In other words, strength in the yen usually relates to weakness in the dollar, which is positive for gold. However...since we note that trading in gold is picking up in Japan - and we do know that Japanese government officials continue to argue that the yen must move lower, it isn't too difficult to conclude that some of the recent upward pressure is a result of money moving from yen to gold.
The trend for the Philadelphia Gold and Silver Index (XAU) has followed the overall trend for gold in yen terms for quite a number of years. Notice how gold in yen terms broke up through the channel top first and is continuing to accelerate upward.
Which brings us to our point. Our short-term target on the XAU is 60-61. The problem with this is that it is both logical and unbelievably low from an historical perspective. If you like to hit singles then this is a good place to exit. But if you are prepared to swing for the fences, and accept the risk that comes from doing so, then sit back and enjoy the ride.
Is gold rising because of the Enron/Bush connection, or is it related to the possibility that Newmont is going to acquire Normandy in order to unwind its hedge book...or is it actually the result of a rational move by Japanese investors to put money in something that is cheap by historical standards, and is priced in dollars. Take your pick -- either way, gold broke 287 yesterday and could see 316 and then 324.
Kevin Klombies
IMRA
krk@krk-imra.com
www.krk-imra.com
January 14, 2002
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