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Gold’s Fall, Jon Stewart & QE2

gold

Gold fell $30 today and it got me thinking about whether we had hit a point where its safe to be a buyer. If you look at the chart above, you can see that I’ve drawn several blue circles on the price graph as well as on the Stochastics technical indicator. You can see that in the first two sets of circles, the price hit the moving average and proved it was a good time to buy as the Stochastics hit the bottom of their range (indicating an oversold move). However, with today’s fall, you can see we hit the moving average but the Stochastics is no where near the oversold level. This generally indicates we may have more downside to go before we hit an oversold level.

I’ve written here that I anticipate a move down to the 89 day moving average as an entry point at some point. Maybe the Stochastics indicator is telling us that we should see that opportunity in this price move.

As I’ve written many times here, the move in gold is directly related to the devaluation of the dollar cause by the Fed’s QE2 activities. In QE2, the Fed essentially prints more dollars and buys treasury bonds with them. The more money in circulation lowers the value of the dollar and pushes up the price of gold as investors buy more to offset the anticipated effect of inflation that comes with a devalued dollar.

Well, this has now hit the mainstream because Jon Stewart reported on it on his show. Check out this video:

Click Here to watch Jon Stewart on Comedy Central

Mark