GOLD NEARS TEST OF ITS FEBRUARY HIGH -- AND CONTINUES TO DRAW SUPPORT FROM A FALLING DOLLAR -- GOLD HAS ALREADY REACHED A RECORD HIGH VERSUS THE EURO AND SWISS FRANC -- AN UPTURN IN THE INDIAN RUPEE IS ALSO HELPING GOLD
GOLD ISHARES NEAR TEST OF FEBRUARY HIGH... The upturn in gold that started a month ago remains intact. Today's upside gap puts the yellow metal in position to challenge its February high. Odds for an upside breakout look good. Gold has a lot going for it at the moment. The recent Fed launch of QE3 pushed the dollar lower. Gold is also benefitting from historically low interest rates. That's because gold is a non-yielding asset. That makes it more competitive when bond yields are being kept so low. Currency consideration also help. Recent news stories have identified several central banks that are adding to their gold reserves. Another positive sign for gold is that it's rising versus all currencies, not just the dollar. That means that gold is also benefiting from its role as an alternate currency. Another factor helping gold of late is the rebound in the Indian Rupee.
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Chart 1
FALLING DOLLAR IS SUPPORTING GOLD RALLY... Once again, the falling dollar has proven to be a bullish prop for gold. Chart 2 shows the inverse relationship between the Gold iShares (GLD) and the Dollar Index (UUP). The plunge in the UUP during September has coincided with the upturn in the metal (see arrows). The falling dollar has given a boost to most commodities. But, as is often the case, gold is the biggest beneficiary.
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Chart 2
GOLD HITS RECORD AGAINST EURO AND SWISS FRANC... When the dollar falls, foreign currencies rise with gold. It's a good sign for gold, however, when it's rising faster than those foreign currencies. And that is the case. Charts 3 and 4 show gold hitting new record highs against the Euro and Swiss Franc. In the Pacific Rim, gold is also rising against the Australian Dollar and the yen. Chart 5 shows gold hitting a new ten-month highs versus the Aussie.
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Chart 3
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Chart 4
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Chart 5
RISE IN RUPEE ALSO HELPS... A case can also be made that the recent upturn in the Indian Rupee is helping gold. India is the world's biggest buyer of gold jewelry. This year's plunge in the Rupee to a record low against the dollar made gold too expensive for Indians to purchase. That helped keep a lid on the metal. The recent upturn in the Wisdom Tree Dreyfus Indian Rupee Fund (ICN), however, is an encouraging sign. Chart 6 shows the ICN having risen above its 200-day average after exceeding a yearlong down trendline. The area below the chart suggests a link between the Rupee and the price of gold. A rising Indian Rupee makes gold more affordable to local buyers..
