Four Important Charts

Here are four charts that all of us should be watching carefully. The first one is gold.

This chart is bullish. Gold is simply consolidating its big advance from the summer. This consolidation is marked by the red pennant formed since reaching its multi-decade high on November 8th. Pennants are a bullish consolidation pattern, from which the eventual break-out usually goes to the upside. Gold looks ready to break-out to the upside this coming week.

The silver chart is also bullish.

I last presented this chart in my alert on November 18th and asked: "When a correction occurs, it is always prudent to see if anything meaningful has changed. Did any of the factors driving the precious metals higher for the past several years suddenly disappear in the past week?" My answer back then was that nothing had changed, and it remains my answer now. The factors that are driving the precious metals higher remain in place.

When silver first broke out of this latest pennant to the upside, which I noted in my alert on November 11th, I thought that there was enough momentum behind it to carry silver higher without any consolidation. There wasn't. Silver retraced back into the pennant, indicating that more base building is required. Importantly, the overall pattern has not been adversely affected. This pattern remains bullish, which is something we cannot say about the dollar.

When I last presented this chart on November 11th, the Dollar Index was 75.40. An interim low came two weeks later at 74.86. The dollar's slide has halted for now, so my arrow pointing lower overstates the dollar's bleak prospects because of the short-term bounce underway. But as is the case with the precious metals, nothing has changed. The outlook for the dollar is as bearish as it is bullish as for gold and silver. But here's a point to begin pondering.

Will the dollar's slide against the euro and other major currencies, as measured by the Dollar Index, stop here? It's a possibility. Given the reckless way the European Central Bank is printing euros, as noted in my last alert, we could for the first time start seeing both the dollar and the euro sink more or less at the same pace against gold.

This point is important because the euro has been used by some as a 'safe haven' to escape the weak dollar. If people are now waking up to the fact that the euro is a fiat currency with its own problems and inflationary-prone central bank, money could start flowing away from both the dollar and the euro into gold at a greater pace, in recognition that no national currency provides a refuge from central bank currency debasement. Here's the chart of gold in terms of euros.

Overall, gold has not been rising as rapidly in euro terms as it is against the dollar, simply because the euro has generally been rising against the dollar. Nevertheless, we can see clearly that gold is in a bull market against the euro too. More importantly, gold is within a chip-shot of breaking into record high ground.

The previous high against the 7-year old euro is EUR568.50. This past Friday's close was EUR565.15, which is just EUR3.35 away. This apparent shift in sentiment against the euro may mean that gold could achieve a new record high against the euro before it reaches a new record against the dollar.

The dollar doesn't offer a safe haven, so the money that fled the dollar into the euro in the first place will not reverse back into the dollar. It will go elsewhere, and no other national currency has the depth to absorb this flow of hot money. So where will it go? I think it will go into gold, which if it does, would mean that gold's uptrend is going to accelerate.

Published by GoldMoney
Copyright © 2007. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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