Most of the analysts I have heard talking about the reason for the rise in gold over the few weeks have been claiming that when volatility goes up so does gold. Others have been saying that it is moving closer to its inflation adjusted high (to about 2500). Let’s examine that, shall we.
On this three year chart we can clearly see that gold has been on a steady rise despite the level of volatility. Each arrow points at peaks in the volatility index and we can see that even in between the 08-09 drop in the market gold was still just chugging higher. So clearly it can’t be just the volatility.
Versus the dollar, there is no real correlation to the price and inflation either. It seems that no matter what happens the price of gold just keeps going up. How high will it go? I have no idea. The bottom line is that gold is a finite resource and we are running out of places to look for it.
At present I believe we are seeing a climax top. The ADX indicator is in extremely over bought territory and the MACD is pointing straight up. This rarely happens with anything. I expect that we will see a short term pull back and consolidation before moving even higher.
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