INDIAN CENTRAL BANK BUYS GOLD -- MORE MAY FOLLOW -- GOLD IS RISING FASTER THAN ALL GLOBAL CURRENCIES -- CENTRAL BANKERS MAY START TREATING GOLD LIKE NEW RESERVE CURRENCY
GOLD SURGES TO NEW RECORD IN HEAVY TRADING... Gold prices surged today to the highest level in its long history. Chart 1 shows the streetTrack Gold ETF (GLD) surging the equivalent of $25 dollars to a new record high. The volume bars show that recent trading activity (including today's) has been heaviest on up days and lightest on down days. That's a bullish sign. The weekly bars in Chart 2 show GLD having recently broken out of a bullish inverse "head and shoulders" pattern that we've shown several times before (including before the breakout). I've written before that an upside target from that pattern yields a $1300 target for bullion (130 for GLD). On the surface, there appears little reason to explain today's gold explosion. Beneath the surface, however, there may be a good reason for the sudden buying of gold. And it started in India.
Chart 1
Chart 2
INDIA CENTRAL BANK BUYS A LOT OF GOLD... According to Bloomberg, India's central bank purchased 200 metric tons of bullion from the International Monetary Fund. The purchases took place between October 19 and 30. Bloomberg claims that to be the largest single purchase by a central bank (in so short a time) in thirty years. It's now believed that other central bankers (including China) may soon follow suit. Why would they do that? In my view, it's because they've lost confidence in the U.S. Dollar and can't find another reserve currency to take its place. That leaves gold as a currency alternative. Everyone knows that a falling dollar pushes gold higher. What they may not know is that bullion is also rising faster than all the world's currencies. To illustrate that point, the following charts show gold rising in terms of the Euro (Chart 3), Pound (Chart 4), Swiss Franc (Chart 5), Yen (Chart 6), Canadian Dollar (Chart 7), and Australian Dollar (Chart 8). The Aussie Dollar has been one of the strongest foreign currencies. Chart 8, however, shows the GLD/XAD ratio breaking out today to the highest level in five months. That means that gold is now outperforming the Australian Dollar. What better place to look for an alternative to those currencies?
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
GOLD IS ALSO STRONGER THAN EMERGING CURRENCIES... The countries most likely to turn to gold as an alternative reserve currency are emerging markets. Especially the big ones like India and China. The dollar is rising against those currencies as well. Chart 10 plots GLD against a basket of emerging market currencies (CEW) which include the Mexican Peso, Brazilian Real, Chilean Peso, South African Rand, Polish Zloty, Israel Shekel, Turkish New Lira, Chinese Yuan, South Korean Won, Taiwanese Dollar, Indian Rupee. The chart shows the GLD/CEW ratio hitting a new high today. The Brazil Real has been one of the world's strongest currencies this year. Chart 10, however, shows the GLD/BZF ratio breaking out today to a four month high. In other words, gold is now stronger than the Brazilian Real. No wonder central bankers are starting to turn to gold. It may be the best candidate for the world's new de facto reserve currency.
Chart 9
Chart 10
