“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Thursday, August 9, 2012

Euro Gold Hinting at Upside Breakout

US centered investors/traders more often than not develop a US Dollar-centric view of the price of commodities, gold included. As such we oftentimes can miss how a large portion of the global investment community can be viewing the price action of an individual asset.

It is no secret that the current epicenter for global economic troubles is Europe. Sovereign debt woes and squabbles among the various members of the EU have led to a sort of impasse which is sapping confidence from investors in that corner of the world.

The result has been a significant amount of gold buying as a safe haven among Europeans.

This is quite noticeable when one compares the current chart of gold priced in Euros to a gold chart priced in US Dollar terms.

Frankly, Euro gold has a much stronger chart than US Dollar priced gold currently has. As a matter of fact, you can see from the following chart, that Euro Gold is a mere 50 euros or so just off its all time high! Compare that to US Dollar priced gold which is currently trading closer to $300 off its best all time level.

Unless we get a significant downside move in EuroGold, US Dollar gold bears are going to have their work cut out for them getting much more in the way of additional downside price action.

14 comments:

  1. Hallo Dan... do you think hedge funds will consider the Eurogold chart?

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  2. Can someone help me understand how gold can be worth more in one currency vs another or am I misunderstanding what Dans saying. Gold trades on the global market and it's value is set for all. So if it is worth more in a specific currency does that mean that that currency is just weak? For instance, a weak Euro means more Euros are needed for the same amount of gold.

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    1. This comment has been removed by the author.

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    2. Exactly. I'm in Europe. I bought some gold in july 2011 at 1120 €/oz. Now it's 1350 €/oz (real physical buying price from a german site)... + 20%

      If You bought the same gold at the same time in the US you would have payed 1600 $/oz... just as now! + 0%

      Take a look at this and change the chart from $/oz to €/oz, look how it changes

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  3. I am with ya Gilliom, the price of EuroGold seems to say more about EURO and less about gold. What am I missing?

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    1. If you have bought in euro in the right time, now you're richer!

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  4. You gents are correct except the chart says eurogold should head higher, regardless of how the dollar, the euro, or gold does.

    In other words, gold may go down when priced in dollars while up in euros. Alternatively, gold may go up in dollars and euros. All the chart is mapping is the XAUEUR pair so if you trade based on charts, the price of gold in dollars and/or the value of the dollar itself isn't very relevant.

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  5. To TheGilliom,

    330 million people are in the ostensibly wealthy Eurozone (there is a lot of cash and wealth there seeking either yield or sanctuary). Most will think in Euro terms rather than dollar terms, and Euro are as good for buying gold as dollars or any other currency.
    To dollar thinkers, gold peaked last summer and has declined substantially since then. As a declining asset in dollars, gold is not a 'buy.'

    To the 330m paid in, thinking in, and trading in Euro, gold is not a declining asset. It again peaked last summer, but has held its value well, and does not look like a bubble. True, the dollar may have been just as good an investment last summer till now, but gold has its own appeal, both in the public consciousness, and by virtue that it cannot be debased by governments.

    If Europeans are spurred by a EuroGold price that is looking strong, then the expectation is that it will result in REAL demand, and will by virtue of real demand, boost the price in all other currencies by hoovering up supply.

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  6. Byzantium;

    Well said, that is precisely my point. The only people who think of gold in Dollar terms are Americans. Europeans see gold and think of it in terms of the Euro; Canadians in terms of the Loonie, Japanese in terms of the Yen, Brits in terms of the Pound and Swiss in terms of the Swiss Franc.

    They could care less about a Dollar priced gold chart. This is what is so difficult to get Americans to understand.

    A strong Euro Gold chart means that European demand for Gold is strong; Same goes for Swissie Gold or Sterling Gold, etc.

    That is real demand which translates to the fact that it will be difficult for gold bears to break the price down significantly in Dollar terms as long as that European based buying continues.

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  7. Hi Dan,

    I am inclined to offer a variation of some wording that you used, but note that this is in the spirit of somebody who sees you as being a Jedi master of markets & investing.

    As a rookie myself, I know where the confusion is coming from in the Euro-gold issue. If we abstract for a moment, and suppose (though unlikely) that all gold demand is driven by the dollar zone, then of course it is possible to put a token historic price chart of gold in any currency in the world, simply by applying an exchange rate. That doesn't mean that there is any demand from that currency zone.

    So, any non-dollar gold charts that look bullish, are not necessarily proof that a) anybody from that currency zone is buying, and b) that they follow price signals from that chart instead of from the dollar chart.

    So from an abstract point of view, the posters above are correct that a bullish gold chart in local currency, does not necessarily equate to any local demand.

    Back to the real world, and essentially to the posters above; Europe has enormous liquid wealth tied up in Euro accounts, both personal and business. Though the bullish Euro-gold price chart is no proof of an active market for gold in Euro, what we do know is that citizens of the Eurozone (and they likely think in Euro), will be at least as interested in the Euro-gold chart, as they are in the dollar one. It is however precisely at this time, that many Europeans are seeing their currency depreciating in terms of FX, and just about holding its own in terms of gold for the time being.

    For those citizens or funds who are alarmed by any of
    • the prospects for the Euro in terms of purchasing power
    • the prospects regarding exchange rate to other currencies,
    • the thought of waking up one morning to find their bank balances converted into Drachma/Lira/Pesetas/punts/escudos, and then seeing this being promptly devalued

    then many such people/funds having these concerns, will likely be actively hedging in some fashion. There are several ways to hedge, including dollars and gold. Gold will be sucking up a lot of this hedging demand, it is inevitable, because many Europeans trust the dollar no more than they trust the Euro. This demand by Europeans at this time is very likely to be substantial, because the Eurozone is in aggregate, an extremely wealthy body, and currency fear (not just Euro fear) is high.

    What the Euro-gold chart is telling Europeans, is that for THEIR currency zone, including the factoring in of their currency's performance, that gold is looking neutral to bullish, and more importantly, is not giving any signals that there is merit in deferring a purchase.

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  8. sorry, I should have clarified, I was addressing the sentence
    'A strong Euro Gold chart means that European demand for Gold is strong.'

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  9. Dan, first of all, I love all your work, and I appreciate you coming to the radio every week.

    I really think the gold chart being priced higher in EUR terms is due to the EUR being weaker, not due to higher demand out of Europe. I'm originally from Europe, and even though private individuals hold gold, it's a very insignificant amount. European thinking is based in terms of the Euro, and the high unemployment makes people want more Euros, not necessarily more gold. Buying is primarily coming from the East, from central banks esp. China, as investment demand has dried up. Supply/demand works differently when it comes to investment: for ex. when prices go higher, demand increases unlike the real world when demand goes down when prices rise. This is why I believe in the manipulation theory, as it is used to scare away investors, and why physical gold/silver in my opinion should be purchased and HELD instead of using the future accounts. I believe once the West starts to purchase gold en masse, the price will be around $5000. Momentum, supply constraints, dollar debasement, and competition will take it to $10,000 in US Dollar terms as it reaches the Stage 3 peak.

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  10. Also, I believe the gold chart relates to the sea analogy. The sea usually goes deep and water level hits the waist. It then becomes more shallow, as it hits the knees, becomes deeper when it hits the upper shoulder, then shallower again as it hits the waist. Then the water becomes so deep, that you have to swim in order to cross that certain area. However, those who cannot swim usually tend to drown -- I relate this to the mass amount of people who are on food stamps and other lifelines...without the welfare, they would drown. The water then becomes less deep once again, where your feet can touch the ground. This is the last time water gets this shallow, as from this point forward, it gets deeper and deeper, so that people have to keep swimming and swimming. I do NOT believe we have reached this stage in the US; however it might be coming soon if interest rates are to rise in the coming years. The government will use tax revenue to pay the interest on the debt, and if it discharges the debt owed to the Federal Reserve, it will be inflationary. Gold going up and down over the years in a wavelike motion removes the weak hands (Glenn Beck listeners) and we need it to sustain a lengthy bull market.

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  11. its just well thought out and really fantastic to see someone who knows how to put these thoughts down so well. Pro Lean Wellness

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