- Dugald Malcolm

Montreal, Canada

The price of gold continues to climb this morning, with the futures contracts now trading up $23.50. At a whopping $1,170.30, the yellow metal continues to push to new highs. Since breaking out of its symmetrical triangle consolidation pattern on September 2nd, the price of gold has gained nearly 10%.

While gold might be overbought in the short term, its long term outlook remains positive with plenty of room to the upside. The fundamentals remain extremely positive, especially with the announcement of last month's purchasing of 200 metric tons of gold by India's central bank from the IMF. Although a significantly sized purchase, it does little in raising India's total gold reserve which stands at only 6%. The rest of the BRIC countries have even smaller holdings: 4% for Russia, 0.9% for China and just 0.5% for Brazil. This compares to G-7 countries like the U.S., France and Germany, for example, who's gold reserves are at 78.9%, 72.6% and 71.5%, respectively. As rhetoric from the leaders of the BRIC countries continues to demonstrate a serious concern over the weakening dollar, a shift in their reserves to gold seems only natural, and, as the previous IMF statistics demonstrated, there is plenty of room in their reserves to do so.

It is clear that most of gold's recent gains have coincided with considerable dollar weakness. The price of gold, for the most part, tends to move with a negative correlation to that of the dollar. There are days, however, and we have seen some in recent weeks, where gold does not maintain this negative correlation and actually makes a significant gains on days where the dollar has also closed higher. To help demonstrate that gold's gain is not only just a weak dollar story, take a look at the following charts:

The above charts clearly show that gold has strength even vis-a-vis other major currencies. Every chart displays the recent bullish Golden Cross of the 50-day moving average crossing above the 200-day moving average. Where the price of gold has moved appreciably above its previous record highs on the U.S. Dollars chart, it has yet to do so on any of the charts above, despite a strong uptrend that has pushed the price of gold higher on all charts since the beginning of this month. The previous highs on the chart could provide some short term resistance and a chance for the recent steep rise in the price of gold to take a breather. This could possibly result in a consolidation around the trend line or even a slight bounce off of it. Even in the event that this occurs, it will most likely be just a matter of time before gold breaks through the trend lines of the respective currencies and, like it did on the dollar chart, continue make a strong push higher.