The USD’s multi-month decline hit the skids last night on the back of weaker technology earnings and some tinkering under the hood at the People’s Bank of China. The PBoC lifted the one-year lending rate by 25 basis points to 5.56 per cent. Whether this was a sign of co-operation in response to America’s call for Yuan revaluation, or an inward looking move by Chinese Bureaucrats to slow economic growth given overcapacity concerns remains to be seen. Whatever the reason, traders long on risk assets were scrambling for the exits as the USD popped out of its multi-month downtrend. We saw the Aussie dollar tank a full 2 cents within the space of 12hrs. The copper price dropped out of strong bull channel, while gold and silver had a significant pullback. The ‘buy the dips’ gold crowd had been getting fairly anxious on the sidelines, watching the metal power on to new highs in recent weeks –it looks as though their patience has paid off. We had mentioned in earlier posts that a gold selloff would probably be accompanied by a falling AUD, providing a cushion for Australian gold bullion investors. This was certainly the case last night as USD gold fell nearly 3%, the Aussie dollar gold price retraced around 1.4%. It will be interesting to see how the rest of the week unfolds. Many commentators are calling a reversal in the USD, forecasting heavy deleveraging in November. Others are not so convinced, believing the last night’s USD strength was an overdue dead cat bounce. At the end of the day, global markets will take direction from the Fed’s November announcement on QE2 .

Jesse’s American Cafe offered up some commentary on the gold retracement below. I’d like to stress the point that we’re not so concerned about a ‘liquidity panic’ resulting in gold overshooting to the downside – The AUD cushion is a valuable insurance policy.

Gold Daily Chart - Intraday - The Retracement

If you are a patron of this cafe, you cannot say that the breakout and rally to 1375, and the retracement currently underway, were not prominently placed on the menu for some time.

So now what? Gold will retrace back to a more sustainable trend, consolidate, and then resume its bull market rally to the minimum measuring objective of 1455 and probably higher.

If there is a general liquidity panic gold will overshoot to the downside, perhaps considerably, and then gather itself and rally sharply back to the trend. I doubt that it would break the 1280 level except for an intra-week plunge, but that is always possible.

There will be the usual displays of human emotion, but this is a natural and healthy correction in a bull market. I was becoming very concerned that gold might continue on this new, more aggressive trajectory all the way to 1455. This would have resulted in a more damaging correction. The green trendlines are the 'safest path' for a sustained bull market.

This rally in gold and silver is an artifact of the crumbling of the post WW II US dollar reserve currency regime and its replacement with something else. Gold and other commodities were influenced, if not controlled outright, by an Anglo-American financial cartel for their own advantage, and far too often the personal advantage of a few powerful men. This is changing. What comes next, no one can say for sure.

As some have suggested in their bitterness there is the possibility that an authoritarian new world order can dictate prices of gold or anything else for that matter. This is not probable. But if that happens the price of gold may be the least of our problems. The propensity of people to say and do stupid things rather than admit their own errors and mistaken beliefs is sometimes remarkable. This is one of the themes in the movie classic Bridge Over the River Kwai. Some say that art imitates life. I would say that life on the internet imitates high school.

Disclaimer

This information is provided for general information purposes only. Please seek independent professional advice. Content views and opinions may be sourced from a third party. BULLIONMARK does not guarantee the accuracy of this information. BULLIONMARK accepts no liability for any loss incurred as a result of this information. For more please read our terms and conditions or contact us.