At this time, gold and the major stock market indexes are synonymous. When gold rallies higher the major stock market indexes seem to rally higher as well. Gold is signaling to investors that inflation is being created by the central banks. As we all know by now, when there is inflation the major stock market indexes will react and trade higher. Just look at yesterday’s market action, gold traded higher by more than $25.00 per ounce and the Dow Jones Industrial Average finished higher by 300.00 points. All stock market rallies that we have seen over the past 10 years have moved higher with gold.
Gold is a safe haven trade against the fiat currencies that most leading countries in the world use. In early September 2011 gold topped out at 1923.70 an ounce. Since that high pivot, the precious metal has traded in a range from $1535.00 to $1800.00 an ounce. This is actually just a wide consolidation range in the near term. Traders should simply use gold as a stock market barometer at this time.
Gold does not look poised to break out to new highs anytime soon, however, it simply looks to be a in a long consolidation base. All traders and investors should remember that gold needs to have corrections just like stocks or any other equity. After all, gold has been in an eleven year bull market, even the best equities need to pullback and build up buying interest again.
This precious metal is the central banks worst nightmare because it tells the world how much money is being created. When the central banks around the world devalue their currency gold will respond by trading higher. This game of diluting currency by the world’s central bankers is not going to stop anytime soon. This seems to be the only solution to the problems that the large banks are facing. There is even chatter that the European Central Bank (ECB) will soon print Euros in order to bail out Italy, Spain, and France. If this happens, gold could soar sharply higher from here. While this event by the ECB would take some time to happen it is very likely to happen over the next year or so. Gold will often lead the markets and trade higher before the news is even released by the central banks that are printing money.
This morning, the SPDR Gold Shares (NYSE:GLD) are trading higher by 0.10 cents to $166.72 a share. Traders should watch for some intra-day resistance around the $167.20, and $176.75 levels. Gold looks to be just a trading vehicle at this time, however, it still looks great as a longer term hold after this sloppy correction phase ends. It seems very difficult to see the major stock indexes inflate higher without gold at this time and in the future.
