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Gold breaking out – another look at those inflation adjusted highs

Since the start of March gold has been range trading between $1440 on the upside, with solid support found at $1380. Gold has had a couple of sniffs a record highs the past month, but on both occasions retreated from those highs and found a steady level at $1420.

Gold needed to decisively move through $1440 and hold there for a breakout to start. We got such a move yesterday, jumping all the way to $1455 signaling that the market is ready to test new highs. Today the buying has continued confirming yesterdays breakout and we can now expect a strong move from here.

In nominal terms gold has never in its illustrious history been higher and as such there are no targets to aim for and no obviously numerical resistance overhead, the market is going to have to find new numbers to aim for.

This is where the inflation adjusted numbers help. Back in 1980 gold hit its highest ever numerical high of $850. It took some 28 years for gold to get back to trading at this 1980 high. But obviously, what with the Fed’s love of all things printing-pressy, a dollar in 1980 was worth a lot more than a dollar today. When we take this into account and even using the Fed’s woefully inadequate method in accounting for inflation, the ‘real’ target for gold is  $2282.92 – clearly we are still a long way off that figure.

In the more short term expect for some resistance around $1490-$1500. But it looks like this could be the start of the next meaningful leg higher on the way to that inflation adjusted target of $2282.92

In sterling terms gold is being a laggard. Back at the start of February, when gold was trading at £825 we noted that gold had fallen back to its 200 daily moving average, a historically good point in this bull move to build a long position. In that article we posed the question:

“So the only real question is, are we in for a few months of consolidation around the 200DMA before making new highs like in ‘09, or is this a momentary meeting like in ‘10?”

We can now answer that question – it was a momentary meeting like in 2010.

Today gold traded as high as £897, still a little way off the all time closing high of £914 reached right at the end of 2010. However, chart wise the price action looks very healthy and we’re probably only a couple of weeks (if not sooner) to retesting the all time highs of £914.  This level might prove tricky to get through at first advance. However should that happen a very bullish reverse head and shoulders pattern would have been formed which should give gold the momentum it needs to go for new all time highs in terms of sterling.

Once a definitive breakout happens in sterling terms there will be no obvious numerical resistance overhead, just like what is happening in gold priced in dollars at the moment.

This is when the inflation adjusted all time highs priced in sterling will start to be dusted off and looked at. Back in 1980 gold in terms of sterling reached an intraday high of nearly £350. Again it took near on 28 years for gold to get back to this level.

Again, using the Bank of England’s poor methods for calculating inflation, we get a price target of about £1200. We’re still a good 30% off that number.

This move is a significant breakout – the next few months in gold should be very interesting to say the least.

 

 

Link to this article: : http://www.goldmadesimplenews.com/gold/gold-breaking-out-another-look-at-those-inflation-adjusted-highs-3372/

Posted by on Apr 6 2011. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. Responses are currently closed, but you can trackback from your own site.

63 Comments for “Gold breaking out – another look at those inflation adjusted highs”

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