CHART: Gold Gearing to Breakout

Gold is gearing to break out, against the Euro anyway. After nearly a year running in a tightening symmetrical triangle, the ratio of the SPDR Gold Trust Shares, $GLD, to the Currency Shares Euro Trust, $FXE, is moving back toward the top of the triangle. It is about 55% of the way through the triangle, nearing the peak action zone around 65% (around the October timeframe).

It also has an interesting phenomenon occurring with the Simple Moving Averages (SMA). The 50, 100 and 200 day SMA’s are bunched and have been for a while. What to watch for is the 50 day SMA rising from the pack. This occurred last in May 2011, a period followed by a rise in the ratio from 1.00 to 1.32 over 4 months. This is not a prediction for a move of this magnitude again. But with the 50 day SMA rising from the pack as the ratio approaches the top of the triangle, during a time when the macro economic environment is ripe for a Euro collapse and a large flight to Gold, it is worth watching. A break of the pattern higher will have technical analysts looking for a move to 1.50 or higher in the ratio.

Source: email