Tuesday, September 8, 2009

Gold Breaks $1000!

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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As of this morning, gold has been above $1000 an ounce three times. The first time was in March 2008 when it reached $1033 and the second was February 20th of this year when gold reached $1006. Slightly after 4 AM New York time, gold traded at $1007. Gold also traded close to the $1000 mark in July 2008 and early this June. Unlike previous attempts to break the $1000 an ounce level, this one is taking place at the beginning of gold's bullish seasonal period that runs from August to February.

Gold has had a spectacular rise that began only last Tuesday. Most of the technical indicators on both the daily and weekly charts are not even remotely overbought. The technical patterns look more like a pre-rally. They have not even reached the usual rally formations yet. Until they do, choppy trading around the strong resistance level of $1000 is quite likely. A break higher now is possible, but is not likely to last too long initially. A rally will take hold after awhile however. Gold now has a long 18-month base and that can act as a springboard for a long and powerful breakout that can last for several months.

Silver was as high as 16.80 this morning and is trading at a yearly high. It is trading in a band of resistance between 16 and 19. It may get stuck in this area for awhile as well. Once it clears the 19 area it is likely to go to new highs breaking through the 21 level reached in March 2008. Silver always follows gold.

As would be expected the U.S. dollar is not doing well this morning. DXY, the ETF for the trade-weighted dollar, traded as low as 77.14 pre-market. This is a new low for the sell off that began in March and well below the breakdown level of 78.33. This is the third time this level has been breached. The dollar is weak and the precious metals are strong because the G20 made a pledge this weekend to keep their unprecedented stimulus efforts going. Stocks are rallying as well, not reflecting any potential growth in the global economy as the mainstream media is reporting, but because more liquidity rallies stocks. If it is interpreted as inflationary, it also causes gold and silver to rally and the U.S. dollar to tank. The market's message today is quite clear.

NEXT: Inflation Versus Recession

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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