On June 8th I posted this chart on gold, calling it — “gold’s moment of truth.”
In my opinion, this is the most significant technical move that gold has made since the December bottom last year, held at the November highs, and led gold to new all time highs in March.
Here is gold’s “moment of truth” technical breakout.
With the ECB calling out Ben Bernanke to defend the dollar, by hiking rates; this sets up a situation where Bernanke’s hands may be tied through the November elections, given the weakening US economy.
And that is going to set the stage for the next major rally in gold, in which my price target is
$1270 Gold will also coincide with what I feel is a realistic 10:1 ratio of gold to oil. Oil is overdue for a technical correction to the mid $120’s. The correction in oil will also free up speculative capital which will re-enter the gold market.
While gold bears argue that the Fed has ceased cutting rates, and that the global economy is slowing, which will cap the commodity plays. I believe, that the key for gold is the negative real rates that exist in the U.S.
I also feel that Ben Bernanke may shock markets, and actually continue with 2, if not 3, or 4 more interest rate cuts, as the US banking crisis is poised for another seizure, and perhaps the failure of a major bank. Treasury Secretary Hank Paulson has just warned the European banking community of a coming major bank collapse, and is preparing the markets for a non-bailout of the next failure.
Lehman Brothers is experiencing a “Bear Stearnsesque” run on the bank, and Citicorp is virtually bankrupt, and will need to raise yet more capital. With Oil reaching speculative extremes, I believe that gold will soon resume it’s flight to safety haven status in times of economic, or geopolitcal turmoil – of which the world has both in spades.
Buckle up, and get ready for the next major rally in gold, because gold has shined in it’s moment of truth, and the technical & fundamentals couldn’t look any better.
— Michael Cerulean