Commentary for September 2, 2009

| September 2, 2009

Yesterday we observed the start of a breakout from the pennant formation on the Gold Currency Index daily chart, noting that it would be important for prices to continue higher during subsequent sessions in order to confirm the move. Today both the GCI and gold in US dollar terms rocketed higher, confirming yesterday’s breakout and forecasting a test of the all-time highs of both. We’ll let the charts speak for themselves today:

Earlier this week we discussed the theory underlying this type of formation and noted that when prices finally do break out, especially from a tightly coiled pennant that has been developing for several months, the move tends to be violent. As you can see above, that is exactly the kind of breakout we witnessed today.

Once again the GCI has predicted a major trend development in advance of gold in US dollar terms. Every meaningful divergence between the two over the past four years has ended up following the GCI, which is an incredibly impressive forecasting track record. Given that there are no sure things in the financial markets, only possible scenarios and their associated probabilities, we realize that this winning streak will inevitably come to an end at some point, but we also believe the index will continue to prove its worth over time.

Category: Commentary, Market Update

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