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« Buy in May or Face Dismay? | Main | Kinross Gold Up 22% in Less Than 22 Days Since Our BUY Signal »

Gold Prices Surge – Breaking Downtrend

Gold prices have risen over $30 in the last month and now have comfortably broken the recent downtrend that they were in, moving up to form a new uptrend, ready to challenge the $700 level.

Gold Prices Surge – Breaking Downtrend

From October to April this year, gold prices were in a solid uptrend, making higher highs and higher lows. However the $690-$700 level put up some resistance and after two failed attempts to break through this resistance, gold prices went into decline, breaking the short term uptrend and forming a downtrend that held gold prices down through May to the end of June.

However, gold prices found support at the 200 day moving average, but more significantly it was the $640 support level that saved gold prices falling to $610, the next support level. After bouncing on the $640 level, gold prices have been on a run to the $670's confirming to formation of a new short term uptrend.

So where are gold prices heading? In the long term we maintain our end of year target of $1000/ounce although we expect to see gold prices of $3000+ in years to come. As far as the short term situation is concerned, to determine where gold prices are heading we must consider the most important driving force behind movement in gold prices, the US Dollar.

We recently wrote an article, about the USD being on the Edge of the Abyss, with the index precariously close to breaking down through the key support level at 80. Indeed, the USD has been as low as 80.30, extremely close to falling through this key support.

USD is going to Crash?

We do not see the USD breaking down through 80 in the next week or so. We think it is likely that the USD will bounce on 80 as the Fed and Plunge Protection Team buy the dollar back up one or two points. However any bounce will be a dead cat bounce, as the USD will eventually break down through 80, probably in the coming months.

Once through 80, it is anyone's guess how far it will fall, and it is quite conceivable that the USD could go into free-fall, a full blown collapse, which would send gold prices to the moon faster than anyone can envision. Unfortunately, despite its rapidly diminishing power, the United States Government is still a major force in the world, at the moment. It is not in their interest to see the USD going through a crash, but it may be in their interest to have a “managed collapse” if such as feat is possible!

So what we will probably see is a falling USD, supported on occasions by the PPT. The important fact is that the USD is going lower, much lower and the PPT could possibly loose control of “supporting” the dollar decline and an “unpredictable” event such as a selling panic may be too much for the PPT to handle. Either way, gold prices will soar as soon as the USD breaks through 80, which we believe is coming in the next few months.

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