If you'll recall, in August ago I wrote about the massive inverse head and shoulders pattern gold had formed during the last three years. I presented the below chart to illustrate this:
At that time I wrote:
… gold has formed a long-term inverse head and shoulders formation (two smaller collapses book-ending a major collapse). Typically a head and shoulders predicts a massive collapse. However, when the head and shoulders is inverse, as is the case for gold today, this typically predicts a MAJOR leg up.
Indeed, any move above the "neckline" of 1,000 would forecast a MAJOR move up to $1,300 or so…
Well, last week, gold broke the neckline:
As you can see, gold's recent rally took it above the critical point of upwards resistance. This indicates that the next leg up in the gold bull market has begun. The reason here is simple: investors have begun to realize that every central bank on the planet is hell bent on devaluing their currencies.
Interestingly, this new breakout corresponds perfectly with historic trends. As I wrote in August:
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold's recent peak was $1,014 in March '08 (roughly 17 months ago).
If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold's bull market in the ‘70s).
Well, here were are in October 2009, and gold is definitely making a major move upwards. To me, the reason here is simple: investors have begun to realize that every central bank on the planet is hell bent on devaluing their currencies.
Everyone and their mother believes the Fed's actions are hurting the US dollar. But few people have taken noticed that the Europeans don't want a strong euro, just as the Japanese don't want a strong yen, just as the Swiss don't want a strong franc.
Why?
None of these guys want their currencies to appreciate too far against the dollar because most if not ALL of them export to the US or trade products based in dollars.
