"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


Monday, February 18, 2013

Sterling Gold Consolidating

Sterling Gold, or Gold priced in terms of the British Pound, displays a chart pattern not unlike that which we have recently seen in US Dollar priced gold, prior to last Friday's sharp downside break.

It is in a consolidation pattern dating back to the summer of last year. Dips below the 1,000 Pound mark have been met with solid buying but the metal has not been able to overcome downtrending resistance. Note that the pattern is forming that same wedge pattern that we saw in US Dollar priced gold.

Note the Gold price in terms of the Swiss Franc, or Swissie Gold. The pattern also reveals a market in consolidation; however, it is now moving down towards the bottom of the channel that has confined price since last summer. Price near and below 1450 Franc has attracted buying consistently, so far.

See also this Euro Gold chart which displays a consolidation pattern much like the Swissie Gold chart above. Gold is probling the lower boundary of the channel noted and is moving towards the 1200 Euro region. Since last summer, buyers have surfaced in this area.

The reason I am noting these three charts above is because unlike the US Dollar priced gold chart, they have not yet broken down technically but remain in their consolidation patterns, although it is evident that they are currently weak.

The big question which many of us are asking is whether or not enough valued based buyers will surface in these countries/regions to stem any downside potential and put in place a floor of support. This is simply unclear at this point in time.

The European finance ministers are hoping that hedge funds will continue to move money into European equities as well as European area bonds. If they can herd them into these sectors, money flows into gold might be dented sufficiently to breach the downside support levels indicated on the charts. On the other hand, enough players might just be suspect enough of economic/finacial conditions in the Euro zone and in Britain to want to hedge their bets with the yellow metal. Again, it is unclear. If the gold bulls in terms of the Pound, Swiss FRanc and Euro are ever going to need to perform, it is right here and right now.

I would breathe a sigh of relief if they can push the Euro gold price back above 1270-1280.

I should also note here that while both the Yen and the British Pound have fallen rather sharply against the US Dollar, the Sterling gold chart is no where near as bullish as the Yen Gold chart. Yen Gold is evidencing a pause up at current levels whereas Sterling Gold is approaching the bottom of its range trade.

With gold currently experiencing weakness in US Dollar terms and having violated a strong downside support level, it behooves us to monitor its price closely in terms of some of these other major currencies to see whether this is merely a Dollar priced phenomenon or something a bit more widespread. If it is the former, the move lower in the price should find a footing sooner rather than later. If it is the latter, odds favor more downside in the US Dollar price of gold. Generally speaking, when the gold price is moving in sync against the majors, it is usually trending. When there is a divergence in its price action among the various majors, it normally tends to favor consolidation. Again, this is a general rule, not one carved in stone.

Time will of course make it clear to all of us.

One last thing - seeing that not much came out of this past weekend's G20 summit over in Moscow, we will have to look to the Eurozone to see what level the Euro must trade at in order to get all of them complaining at the same time. Right now it seems that any complaints about the Euro strength are confined to the Southern tier. Germany seems okay with it. If the Germans begin to make any noises then we will need to see how the Euro begins to react.