Has the next upleg begun?

We are talking about the gold market and the gold price. And the question is whether the next upleg in gold prices is under way. If you listen to the Liberal pundits on the Networks, they uniformly dismiss gold as a good investment now. Nonetheless, gold price keeps climbing. If you look at the gold price plotted on a weekly basis (see previous posts), you see a steady march upwards.

I look at the gold miners and gold prices. The first graph shows XAU, the gold and silver miner index. There are two critical points that can be learned from this chart. The first (and most important) fact is that the index hit a low on about May 10, with both the value of the Index AND the associated MACD confirming. Then the index began to rally and hit an interim high about May 26 or so. This was followed by a further decline to a lower low in the Index. However, this low was NOT CONFIRMED by the MACD. This constituted a BUY SIGNAL for precious metal miners.

The second graph shows the gold price on a daily basis. While, the weakly gold price continued to increase, the daily price began to rally after the 4th of July holiday. There are important factors here that I shall dissect out presently.

Beginning in the Spring, traders switched out of the miners and into the metals. Hence, PM miners lavished while PM prices went up. We are now see the opposite. Traders began to switch into the miners before the metal prices went up.

One more important piece of info can be gleamed from the charts. When a market undergoes an important reversal, it batters a support price twice (on the way down) and then drops below that when a third drop occurs. We see that gold prices challenged the $1480 support and bounced off from it the third time on the fourth of July. This also indicates that an increase in gold prices is coming.

The fundamental reasons for gold prices to go up have been discussed a number of times and these have not changed. However, a new factor has been added. No, not the debt ceiling, something else. China and the US had been engaged in a currency war. The Obama regime tried to get China to revalue its currency upward, to reduce Chinese imports and to make US goods more competitive. If China consented, it would play havoc with China's economy. Instead, the Chinese have begun to emulate the US and print money so as keep the value of the Yuan down. This way, the US inflation has been exported to China as well. Such a policy worked well short term, but it is not a long term solution (from China's point of view). So, the Chinese government opened the gold market to Chinese citizens. Estimates tell us that there are over 300 million Chinese who can participate in buying PMs. That is a huge market.

Currently, Western investors are not participating in the PM market. It is estimated that only 1% is buying gold and silver. The markets are straining to provide the metals. If that market were to double, gold prices would go sky high because the supply of metal is limited.

So, what is the new factor? The opening of the Pan Asia Gold Exchange. It will be metal only, no paper contracts. It will come to dominate gold trading. Yea, the Dragon nests on a pile of gold.