Gold’s Aggressive Climb To $1,920 Per OZ and Beyond

Tuesday, 18 September 2012
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Published in From The CEO

After last week’s Easy Money (Q3) announcement by the Fed, gold is looking very fine today indeed at $1,773 per ounce.  Still, it has some work cut out for it.  Next stop is $1,920 per ounce.  But why $1,920?  Why not simply $2,000.  After all, isn’t $2,000 what the precious metals pundits have been targeting?  Isn’t that where the market is headed?  Why split hairs for the extra $80.00 per ounce.

Well, as it happens, $1,920 per ounce is a key number for the yellow metal.  On September 6th of 2011, gold hit that benchmark after a spectacular surge, day after day, once it had reached $1,540 in July.  From there, it was a straight flight to the $1,920 mark – and then, wham!  Gold backtracked to $1,540 per ounce a week later.  What in Sam Hill was going on?  In retrospect, what  we make of this?

First-Strike

Markets have memory.  The numbers in this particular case are simply memory markers for the gold market.The $1,920 figure represents the all-time high for gold, and is now labeled gold’s new “resistance” – the highest number world traders at the time felt it made sense to execute a buy order.  Once the market fell back, $1,540 became the new “support,” the number a consensus of buyers felt was the most attractive low price – a new “bottom,” if you will.

And as for that $1,920 resistance, can gold now take that number out?Absolutely! Gold now has more fire power than it’s had in a very long time.  As you’re painfully aware, gold now has the help of monetary easing – our Fed’s license to print paper money with virtually no end in sight.  It has a very similar mandate from the European Central Bank.  And, just this morning, The Bank of Japan threw its hat in the ring with an asset purchase of $10 Trillion ($126 billion).  In so doing, the BOJ took analysts completely by surprise.  While they were anticipating such a move, they didn’t expect it until next month.

The kicker in all this is summed up eloquently by financial specialist Chris Martenson in his current article in Resource Investor:

‘In order to believe that the Fed or any other central bank can get us back to “normal,” you have to believe that it is normal for borrowing to exceed income and (here's the kicker) that it can do so forever.’

Getting back then to what is going to drive gold past its $1,920 resistance then, we should ask ourselves how long can “borrowing exceed income?”  With interest rates near zero, and the dollar plummeting on the announcement of Q3, how long will investors remain in dollars before they move over to the world’s most reliable safe haven?

Now let’s get back to last year’s $1,540 support level.  What does that actually mean?  Well, it represented a consolidation, or a time for gold to suck up momentum.  Picture a SWAT team with orders to break down a heavy steel door on a drug bust.  And say the team consists of six strong men who take a battering ram to the door.  The door doesn’t budge.  So what does the team do?  They move back further for more momentum so they can move forward faster and harder to knock down the door.

And this is why the market price of gold fell last year.  The market had to step back to find a point of momentum.  Now with the momentum of monetary easing around the world, and with the BOJ grabbing hold of the battering ram, can there be any question that gold will soon push past its new $1,920 resistance?

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.

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