ECB CUTS RATES -- EURO AND GOLD JUMP
ECB CUTS RATES TO 50-YEAR LOW... As was expected, the European Central Bank lowered short-term interest rates 50 basis points today to the lowest level in fifty years. What is a little surprising is that the Euro rose after the announcement -- while the dollar sold off. That suggests that the ECB move had already been discounted by the currency markets. Gold prices are jumping along with the Euro -- and opposite the dollar. Gold prices have risen $5 today -- while gold stocks are the strongest part of Thursday stock market trading. Our work had suggested that a pullback in the Euro could cause some short-term profit-taking in gold. If the Euro continues to strengthen, that will be even more bullish for gold. Chart 1 shows the Euro bouncing off its 20-day moving average. That's usually the first line of defense during an uptrend. The trend in the Euro will remain up as long as the 20-day average remains unbroken. Chart 2 shows the Gold & Silver Index (XAU) rising to a new four-month high in today's trading. As we've said many times before, we continue to believe that gold and gold shares will be the principal beneficiary of the battle against deflation. By reducing interest rates, the central bankers are trying to lower their currencies to create a little inflation. That should translate into even higher gold prices.
Chart 1
Chart 2
JAPAN EXCEEDS 200-DAY AVERAGE... The world's weakest market for the past decade has been Japan, which has been caught in a deflationary spiral. With global central bankers now embarked on a battle against global deflation, we're keeping a close eye on Japan. Since that's where the problem started in the first place, that may also be where we'll tell if things are getting better. That's why we're somewhat encouraged by the move in the Japanese market back over its 200-day moving average for the first time since last summer. If things are getting better in Japan, they may start getting better everywhere else.
Chart 3
GOLD IS RISING IN JAPAN AS WELL... Although gold prices are generally quoted in dollars, it can also be plotted in foreign currencies. The next chart shows the gold trend in terms of the Japanese yen. It shows that a bull market in gold exists even when quoted in Japanese yen terms. This is how the yellow metal looks to Japanese investors. It should come as no surprise then that a lot of the gold buying has come from Asia. One of the signs that gold is in major bull market is when it's rising in foreign currencies terms -- and not just in dollar terms. Since 2000, gold prices are higher in virtually every foreign currency we've looked at.
Chart 4
