Gold is now exceedingly overbought as measured by its daily RSI.

This is the third time RSI has reached these levels during the course of this 9 year bull market. The other times were when the world first became aware that a second invasion of Iraq was going to be a fait accompli and then again shortly after the actual invasion when all asset classes blasted off.

By printing firstly $1174 and then $1185 the massive inverse head-and-shoulders formation targeting well over $1300 now looks a formality. No doubt there will be corrections on the way but where and when is yet to be determined. The current wave is the second major “up” wave since mid-2007 or since the credit crisis began. Remember, large impulse moves are comprised of 5 waves including 3 up waves so “buy and holders” still have plenty of time up their sleeves. Only then will a more significant correction follow which in turn will be followed by another 5 wave impulse. (Note: The final major impulse move in precious metals’ bull markets usually consist of 7 or 9 waves rather the traditional 5 waves.)

Gold is rising against all currencies. It is even rising on the odd days that the Dollar puts in a rally. It is rising because it is measuring the increasing distrust of politicians and governments.

India has bought half of the IMF’s 403 metric tonne sale. India is now pondering whether to buy the remember. Mauritius has also bought gold recently, so has Sri Lanka and so has Russia. These are official and publicized purchases. Then there’s China …

Bottom line is that it is hard to put a lid on the gold price when sovereign governments decide to buy. These players are not speculators. They make an executive policy decision and then act on it. Price is not a consideration, only the desire to better diversify what they view as risky foreign reserves.

The gold market is small relatively speaking. When many players want a piece of the pie at the same time large price rallies occur. But when the world’s rank and file middle class (i.e. mass participation stage) simultaneously decide they all need some risk insurance the current price rallies will look like tiny dots on the charts.

Whilst gold is going one way the U.S. Dollar is going the other putting in a low for the move today at 74.40. Technically there is a lot of support between 74.00 & 74.50, but who knows. The Dollar may go into freefall tomorrow … maybe, maybe not. The risk of such an event happening at some point in time is inversely related to the gold bull market and encouraged by the growing distrust in the authorities who were given responsibility to care for the Dollar.

The indebtedness of the U.S. is beyond repair by normal means of savings and budget cuts. The nation needs to keep borrowing more and more just to avoid drowning and more and more of the world’s chief monetary authorities are becoming aware of this and starting to take action.

Exceedingly low interest rates have been flagged by the Federal Reserve as far as the eye can see. Clearly they’re quite content to watch their Dollar deteriorate in value (hopefully) “in an orderly fashion” in an effort to inflate away the real burden of the nation’s financial obligations.

The question is how will China and other nations who hold the majority of their foreign reserves in U.S. currency ultimately respond to such a policy of currency debasement?

There’s so many Dollars and U.S. authorities have shown clearly that they know no other way to get out of the whole other than to create more Dollars. The Dollar may or may not collapse tomorrow. It may be a long drawn out process, certainly that is what the U.S. authorities are hoping for. Either way, the gold party has a long, long way to go.

- Walt Presley

Related Posts:

• Gold Price Up On Speculation, Not Real Demand and Supply
• It’s Going To Implode: Buy Physical Gold - NOW
• Everyone should diversify because none of us really knows what the future will bring.
• Gold isn’t in a bubble.
• Zero rates means there is something very, very wrong.

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