Tuesday, October 16, 2007

Sign of a fundamental change

I'm posting the weekly charts of GLD and the XAU. Notice the only other time that GLD shot up like it did recently was during the final leg of the first phase in golds secular bull market. Now take a look at the XAU. It has never gone up like that. Some are suggesting that we are witnessing the final blowoff in this bull market. I guess it's possible. Anything is possible. However I'm going to point out another possibility. Perhaps something very significant in the investing environment recently changed. Gold is simply responding to that change. The Fed has decided to sacrifice the dollar in exchange for stimulating the economy. Gold is simply responding to the obvious that the Fed is now embarking on a rate cutting cycle. Will they cut at the next meeting? I don't know. The Fed funds futures say the probabilities are low for that in Oct. but who knows about the rest of the year. I don't see gold reversing this uptrend to any great extent until the Fed starts tightening again and I doubt that will happen at least till after next years elections.