Source:
WSJ

Source: CNBC

Gold has risen so far near 53$ today, but AUD & EUR have failed to make highs against US Dollar. It is not a divergence of Gold with EUR & AUD to go long against US Dollar. So, be cautious in placing long EUR/USD or AUD/USD or USD/CHF short. Gold is in actual bull mood today due to money supply increased drastically by ECB, RBA & Fed.

Following charts are Gold against EUR, Gold/AUD, Gold/JPY

In previous article I said increase gold demand from India may boost price of gold in short term, but one of Gold expert in modern market has something simple & different view.
Rest of the article.....

After pumping $200 billion by central banks around the globe + Fed's bailing out role of AIG, MER-BOA, GS, JP Morgan things, market should calm down at least for a while. I am expecting new buyers to kick in & SPX should go back up near 1300 until next big news comes out.

Crude oil is down & there is temporary enough liquidity in market. Fed & other central banks are really committed to continue their Term Auction Facility program to pump up money. So, I am not seeing any other reasons right now for SPX, not to go back 1300 in coming months.
That means, USD/JPY back to previous key level of 108-109.

EUR/USD should remain in pressure due to ECB's dovishness towards interest rate. Check previous post on currency analysis for detail fundamental view.

I'll be watching Gold really carefully becase in India key festival season (Diwali) of the year is coming next month. India is the largest consumer of Gold. If consumer demand increases for gold for the season more than expected than surely there'll temporary rise on AUD & EUR, but rise would be really limited.

So, let's keep watching volume & open interest and make some money.

Happy trading.

I am really not expecting for GOLD to break current weekly trend line support. Therefore AUD & EUR to remain more sideways instead of keep falling further. EUR may fall further more to 1.3850 by looking @ support area. Keep watching Fundamentals...

These are charts of EUR/USD, GOLD & AUD/USD. They all are testing weekly Trendline. If you are long term CARRY TRADE investor, stay alert for Long position on Aussie & Euro.

Note: Red price boxes are support & resistance levels.

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This is the chart of Crude Oil vs. Current Money Supply. (Isn't it astonishing chart?) The fact is excess of money supply causes price to rise and that is called inflation, not other way around.

One argues that but price didn't rise from mid 80's to late 2000 despite of increasing of money supply. But reply from Mr. Paul is not surprised. He says,"Amount of exploration in late 70's & 80's caused enormous amount of production capacity in oil by major oil companies & made oil cheap. The effect was Americans got used to very cheap oil."

Furthermore, by explaining this chart below where price of oil is adjusted by money supply by Federal Reserve he says that current price of oil should be near $3.00/barrel if there was no money supply from 1959-2008. From near $3 to $135 price hike is caused by money supply and from $0 to near $3 is caused by supply-demand.
If one applies same money supply analysis with Gold, he/she shouldn't be surprised. Below here, chart of Gold from 1975 to 2008 completely matches with Oil & money supply. The difference is Oil rose faster than actual rate of inflation in parabolic pattern like gold did from 1979 to Jan 1982.
So result will be, oil could make new support near $100, but it's not going down further. It's only going up in future because we are already observing free use of money supply by Fed. So, I am not surprised when some analysts saying that oil will be reaching to 200+ & same is true with Gold & Silver.

The good news is, when Fed raises interest rate like Paul Volker had to in mid 1980's, current profit of oil companies will worth more in Dollar terms & it'll help them to increase production capacity by increasing oil exploration. But it's not coming soon until we bottom in financials.

As we notice here in Dollar Index Chart, that it's going for downside correction. So I am expecting short term Dollar weakness after FED Interest Rate announcement.

Historical US $ Index Price
Historical Crude Oil Price
Historical Gold Price
Historical Inflation Data

	Crude Oil	Gold	Dollar Index	Inflation
1980	97.68	850	89.55	13.58
2008	136.00	886	73.59	4.08

As you can see clearly here, if we match numbers with last high on Gold, Oil on monthly chart with dollar index, numbers don't match @ all. There is a clear unevenness in price: gold should be near 1500. But if we calculate same numbers from US Gov. Inflation data, gold should be near 700 & stronger dollar.

Since there is very low probability of US Dollar Index to reach in 90s from looking at US Economic data, I am going for 1500$ gold(bear on US$). Financials are still vulnerable in US, so ofcourse Fed is between hard & rock. But in scenario of Growth vs. Inflation, I am pretty sure Bernake will choose growth & not raise interest rate soon, but will just give hope to market by hawkish tone.

Current divergence in Oil vs. Gold is due to weaker Euro Zone data. Euro holds 57.6% of US Dollar Index & $x is highly correlated with Gold. But since Gold is an Inflation hedge, long term prediction is gold will break its high correlation with EUR/USD spot & will head higher. In this scenario, AUD/USD long & USD/CHF short will be good trades.