There is much debate about the effect of currency wars on gold and its future direction. Currently, the fundamentals of gold are muddled. On the one hand, central banks continue to print lots of money, and some believe currency wars are imminent. On the other hand, inflation is stable, and the metals are under the control of the momentum crowd, which represents weak hands. Under such circumstances, it makes sense to turn to the long-term technical analysis for gold for guidance.
A picture is worth a thousand words. The chart linked to below shows the long-term technical analysis of gold.
But before delving into the technical analysis, it is important to understand the background.
Currency skirmishes, not war
My subscribers often forward me investment-related emails that they receive from other outfits that they deem worthy of consideration. Lately, the subject of many such emails has been currency wars. The most commonly asked question is, “Why are you not recommending gold ETF SPDR Gold Shares GLD and silver ETF iShares Silver Trust SLV to protect us from the currency wars that are occurring?”
I have never been a forex daytrader, but relationships between currencies play a big role in our allocation models. We often take medium- and long-term positions in currencies as a means of diversification from stocks, bonds and commodities.
My answer to the question of currency wars has been consistent for the last two years. There are no currency wars, just currency skirmishes. My forecast has been that we will see skirmishes for the foreseeable future, but no currency wars.
Monday morning when the gold pit opened for futures trading in the United States, gold fell out of bed. There were reports that the selling was from European and Asian investors, but the data shows that such reports were clearly wrong. China was on a holiday due to the start of the Lunar New Year. Prior to the opening of pit trading in the United States, the London gold fix was much higher.
There is no denying that gold is a solid means of protection against the devaluation of fiat currencies….Read more at MarketWatch