Gold price breakout continuing on September 7th 2012

For three weeks in a row, the gold price has been closing the week with a strong increase. On August 31st, we saw the US Fed coming up with clear hints to more money stimulus to come. In his speech, Mr Bernanke made his case and defended his monetary policy; it became clear that more of the same was coming. On September 6th, Mr Draghi in Europe confirmed earlier rumours that the ECB would buy bonds of several European countries that are in trouble. In fact, what his happening here is that the root cause of the problem (excessive debts by countries) is being cured by creating even more debts (money creation by Central Banks). Peter Schiff described this phenomenon recently as a “self perpetual spiral”.

Now on September 7th 2012, the unemployment figures in the US showed worse than expected results. Precious metals prices immediately rocketed higher on the news. Investors are very well aware that Central Banks consider unemployment figures as a key indicator for deciding whether or not to do additional monetary stimulus.

Gold closed the trading session on September 7th with a solid gain of  2.7%.

 There are a couple of interesting trends visible on the chart since mid August.

  • The daily gold price chart clearly shows the breakout move that started in the week of the 13th of August 2012. The price of gold is steady above ALL moving averages now (20 day, 50 day and 200 day). As far as technical analysis is concerned, those indicators are key and closely monitored by the big institutional investors like hedge funds.
  • Besides it’s not only the daily, but also the weekly chart that shows strength. The monthly chart looks simply ok for the moment being.
  • The price increases come with solid volume.
  • Clearly there is a shift in psychology as the chart shows momentum, not only in the price action and moving averages, but also in the RSI and MACD indicators.
  • Not visible on the chart below, but silver is leading gold higher. We haven’t seen that evolution for quite some time now. It shows strength in the precious metals markets.

In a recent interview on, Grant Williams stated that: “The current gold price breakout looks like it has some legs at the moment. If we get QE3 during the Fed meeting next week, I expect gold to make a further run.”

Dan Norcini shared a couple of interesting insights in the weekly metals wrap on King World News. He said that speculative buying and commercial selling is taking place. Dan believes that it’s speculative money that drives the markets and that speculative money started building long positions. At the same time, huge short covering has taken place recently, so the gold price increase was not only driven by fresh new money. Conclusion: there is still enough room to the upside.


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