Gold in Foreign Currencies

Given the turbulence in the world political scene surrounding the French election let us take the opportunity this week to update our perspective on gold in foreign currencies. There has been saber-rattling between the United States and North Korea, and uncertainty regarding Russian support for Syria. If gold were found to be violating significant support levels across the globe, it would give us reason to question the trajectory for US dollar-priced gold at this juncture. Conversely, if gold, as priced in foreign currencies, remains strong, it would give us reason to anticipate that US dollar gold is set to advance. We observe a breakout in the consolidation discussed last week.

British Pound to US Dollar (GBP / USD)

Before we examine gold as priced in British pound sterling, we should note something. Just last Monday the pound saw a significant breakout versus the US dollar. Below we show the GBP / USD cross pair. This is the final drop seen last October in the wake of the Brexit vote, through the present. The breakout higher in GBP / USD occurred on Monday as the pound exceeded the triangle consolidation. (blue trendlines) This was above 1.255 which had formed following the terminal stages of the preceding decline. This breakout signals a reversal higher in British pound sterling in the works. The initial target for GBP / USD is 1.318. This is equal to the amplitude (0.083) of the other consolidation added to the apex (off the chart, right) of the triangle, at 1.235. We will see if this reversal develops into a longer-term trend of strength for GBP / USD. Our suspicion is a multi-year top forming in the US dollar itself. And that GBP represents 11.9% of the dollar index. This breakout should give an initial signal that dollar weakness is likely approaching. As the most active periods for precious metals prices tend to correspond with the weakest periods in the US dollar, this breakout in GBP / USD bears monitoring. [We note here that a reversal higher in GBP is occurring just at the depths of negative sentiment regarding the British pound. Most mainstream media outlets and investment channels have been expecting continued weakness in GBP. As markets so often do, the negative sense has already gone into the current level. The market has now reversed higher in the opposite direction as prevailing sentiment would seem to dictate.]

Gold in GBP

Turning to gold as priced in GBP, we see that the market remains defined by the long-term rising linear trendline. (magenta). This began in 2005. It broke the 2011 – 2015 downtrend in a surge to £900 in early 2016. Gold then saw a follow-through surge above £900 on the day following the historic Brexit vote. Note that the climb to over £,050, gold then fell right back to £900 in December 2016. It was successful in retesting that breakout point. Gold closed last week at £1,006. We cannot make short-term predictions about GBP-priced gold at this juncture. But, the primary point of this analysis is to determine if there are red flags as per the worldwide gold market. This would give us warning signs as to US dollar-priced gold. We see no technical weakness from the long-term perspective in GBP-gold. Indeed this market looks set to re-challenge the £1,200 all-time high. (established in 2011). On the next surge, which is likely within 12-24 months.

Gold in Euros (EUR)

Gold, as priced in the European common currency, continues to look healthy. This is for the continuation of a worldwide bull market, having closed the week at €1,202. We note the continuation of a similar long-term rising trend which began in 2005. Euro-priced gold broke its 2011 – 2016 downtrend in early 2016. The advance since then features a series of waves. The most recent of which exceeds the prior peak of early 2015. (blue arrows). Lows continue to rise as well. The most recent low was coming at €1,070 higher than the early 2016 low of €970. It is higher than the prior two lows of 2014 – 2015. (magenta arrows). We will want to see the rising long-term support line hold on to any weakness in EUR-gold, just above €1,050. Based on the current trajectory, we can project that EUR-gold will retest its all-time high near €1,400. This is within the next 24-36 months, or slightly after GBP-gold.

Gold in Australian Dollars (AUD)

Ironically, gold in Australian dollars remains stronger on a percentage basis than any of the other currencies. AUD-gold is the only one to have broken its rising long-term trendline back in 2013. The old investment adage, “The steeper the trend, the less important the break,” comes to mind here. Since that technical break, Australian dollar-priced gold has been the only gold cross pair of major world currencies to retest its all-time high of $1,850. Which it did in mid-2016 (red callout arrows). The consolidation taking place since 2011 has made the distinct shape of a cup formation. And it is likely that the retracement back toward $1,550 in December 2016 represented the “handle” of a cup-and-handle technical formation. For reference, the textbook definition of the pattern is shown below. (courtesy Investopedia.com):

Upon a break of the $1,850 all-time high, the target for AUD-gold calculates as $2,400. This derives from adding the amplitude of the cup consolidation ($550) to the breakout point. We continue to anticipate that a breakout to new all-time highs in AUD-gold. For those who monitor such signals, it will serve as an early warning to holders of gold in other major currencies that similar breakouts are pending.

Gold in Canadian Dollars (CAD)

Gold as priced in the Canadian “loonie” is one of the most precise technical markets. It is visible on the charts. CAD-gold closed at $1,740 last week. Which is a mere 8% below the all-time high of $1,900 set in 2011. Below we show CAD-gold since 2002:  The distinctness of the rising long-term (magenta) trendline should leave no doubts as to its importance. The low for CAD-gold was in 2013. At $1,250 per ounce. The breakout confirmed this major low in late-2014 of the declining trendline since the 2011 all-time high. (red callout). Note the well-defined structure of the rising trend since the 2013 bottom. It is a series of distinct higher lows and higher highs. The most recent more upper low came in December 2016 at just below $1,500. Gold in Canadian dollars looks healthy from a long-term perspective. We anticipate it may be the second primary world currency. Which will follow Australian dollar-gold-- to see a new all-time high above the 2011 mark.

Takeaway on Gold in Foreign Currencies

We perform these periodic reviews of gold in foreign currencies to remain aware of what happens across the international investment arena. As a precious metals investor in 2017, you are indeed part of a worldwide movement. We see no major technical warnings across gold as priced in any of the major western currencies. Initial retests of all-time highs occur within the next 24 months. Significant advances following lengthy consolidations should expect upon successful breakouts of these all-time highs. The strength seen in gold as priced in foreign currencies continues to give us confidence. The worst laggard of the group is not far behind. The most important for the worldwide recognition of a new bull market – gold in US dollars.

Christopher Aaron Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. The CIA is where he specialized in the creation and interpretation of the pattern of- life mapping. Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature. His strategy of blending behavioral and technical analysis has helped him and his clients. It has helped to identify both long-term market cycles and short-term opportunities for profit. This article is a third-party analysis. It and does not necessarily match the views of Bullion Exchanges. Readers should not consider it as financial advice in any way.