From a technical analyst’s viewpoint yesterday the charts showed an interesting break out from a head-and-shoulders formation to the upside for gold and silver.
Indeed, gold managed to rebound three per cent and silver rose by five per cent, perhaps aided by speculation that the Hunt family might be buyers again after the $4.2 billion sale of Hunt Petroleum last week.
Chartists hold that a head-and-shoulders formation indicates a change in direction for a trend: either down or up. Gold seems to have taken a decisive step up, and broken out of its channel and should head higher now.
You only need to read the newspaper headlines about new highs for inflation in the European Union and oil a whisker short of $140 a barrel, another all-time high, to appreciate the short term reasons for gold’s rebound. If you look at the longer term trends of dollar devaluation, soaring energy costs and US monetary policy loosening then the path from here should be clear.
Silver is gold’s capricious sister. Outperforming in the good times, falling further when the going gets tough. There are no prizes for guessing how silver is likely to move from here onwards.
The dollar is going to resume its downward trend, perhaps earlier than some analysts thought possible, on the back of soaring oil prices, competitive interest rate rises around the globe (many Asian countries and Russia have already put rates up this year) and US domestic economic recession.
Standby for the inevitable stock market correction which will necessitate a cut from two to one per cent interest rates; does not the crisis surrounding Lehman Brothers have a whiff of Bear Stearns about it?
