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The TSX Gold Index surged to a new all-time high today, confirming Gold’s record new high, and now the real fun begins.  With the Fed actively promoting a lower U.S. Dollar and a more inflationary environment (Helicopter Ben is all doped up on “quantitative easing”), coupled with continued strong growth in emerging markets such as China, India, Brazil and Russia, the prices of many commodities from Gold to foodstuffs are going to keep charging higher with some parabolic moves possible.  We are living in historic times as the Great Commodities Super Cycle heats up.

The “inflationary scenario” is just one of many factors driving Gold, not the least of which is the fact the yellow metal is being increasingly viewed as an alternative currency.  Other contributing factors to Gold’s rise are flat mine supply and strong investment demand.   Gold is also not even close to being in the “bubble” stage  yet – Gold’s run over the last decade has been slow and steady.  And one of the key differences today is that we’re seeing greater affluence in the developing world where people have traditionally turned to Gold to store their wealth.

BMR’s Technical Analyst made a great call October 19 when he predicted that 380 would be the bottom in the TSX Gold Index (“before continuing its climb past 400”) on any pullback in sympathy with some short-term weakness in the metal.  Indeed, the TSX Gold Index hit a low of 383 October 22.  Today it moved convincingly past 400 into record high territory.  John’s next target should not startle you if you have been following this site closely in recent months:  474.  He explains below as he reviews today’s closing chart for the TSX Gold Index:

John: Today the TSX Gold Index gapped up at the open to 410, fell to a low of 398 and then rose to a high of 415 before closing at 414, up 15 points (3.7%) on volume of 90 million shares. This was the reaction after the latest round of “Quantitative Easing” and the turmoil in the U.S. over the mid-term elections.

Our last update on this Index was October 19 when we used the 1-year weekly chart. On that chart we identified two support levels  – 380 and 390 – and stated an expectation for near-term weakness.  “I expect we’ll see some additional weakness in the immediate future but support should hold at the 380 level. I will be surprised if it falls further before continuing its climb past the 400 level.”

Today for our update we use the same 1-year weekly chart to see where the Index has been and where it’s going in the near to intermediate future. On the chart the October 19 situation is identified by the vertical thin blue line. The two identified support levels are shown by horizontal green lines and are noted on the chart. The 390 support was broken only on a daily basis and the 380 level was not reached at all (383 was the low).   Thus, support held.

There are two sets of Fibonacci levels shown. The first one is the blue one on the left showing 0% at 300 and 100% at 367. This is the seed wave. The target extension from this is at 408 which is at the approximate level of the 4 spinning top candles which recognized this area as resistance.

After bottoming out at the 390 level we see that for last week and this week the 2 bullish white candles show a reversal to the upside. In fact, this week’s candle has broken out above the Fibonacci level of 408. This is a very bullish sign. The second set of Fibonacci levels (green) shows the next target is at the 474 level.

Looking at the Indicators:

The RSI is at 65% and climbing – very bullish.

The Chaikin Money Flow Indicator (CMF) is bullish (green) and the average weekly value is increasing, indicating buying pressure is accelerating – very bullish.

The ADX trend indicator shows the +DI (green line) has now reversed to the upside and is above the -DI (red line), thus in bullish trend orientation. The ADX (black line) is flat, showing the bullish trend strength is constant but with the +DI reversal the trend strength is expected to increase.

Outlook: With the breakout above the Fibonacci target of 408 and the bullish positions of the indicators, I expect the Index to methodically climb toward the next Fibonacci target of 474.