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Citigroup Foreign ExchangeValue Added Services & Products
 
CitiFX
 ® 
Technicals Bulletin
 
Technical Developments in the Foreign Exchange and Asset Markets 
23 January 2009 Tom Fitzpatrick (1-212-723-1344)Shyam Devani (44-207-986-3453)
CitiFX.Technicals@citi.com
 
Gold on the cusp of the next big move higher????
We continue to remain unequivocally bullish on the medium to long-term view on Gold and stillbelieve that we can ultimately see levels in excess of $2000.The charts below remain very supportive of our viewWe believe the backdrop that can cause this move can come 2 ways
•
Gold trades as a safe haven to the ongoing financial and economic turmoil
•
Gold trades higher as the massive liquidity injection by Governments around the Worldbrings reflation and with it inflation. We are certainly
NOT
in the hyper-inflation camp but dobelieve that with this amount of liquidity, “success” will also include inflation (Which ofcourse devalues debt versus assets while deflation devalues asserts versus debt) We alsobelieve that the caution to ensure that this is not a “success” that is cut off at inception like inthe early days of the Japanese “recovery” means that authorities will be slow to take backthis sea of liquidity
Gold daily chart
•
We continue to believe that the price action seen since the March 2008 peak at $1,030 hasbeen a choppy consolidation that was working off the 60%+ rally seen between August2007 and that March 2008 peak. This is somewhat similar to what we saw after the $730peak on May 2006 after a 75% rally in the prior 10 months
•
As a consequence we feel that if we can see a break through good resistance in the$875-890 area it could open up the way for a move to new highs by this summer.
Market Commentary
1
 
 
Gold weekly chart
•
Strong area of support held at $673 to $699 and it is now trying to once again regain the55-week moving average at $871. (Not a strong dynamic during periods ofconsolidation though. This would the 6
th
close though it in this consolidation. Howeverprice action like that is more typical of a range/ consolidation than a trend turn)
Gold monthly chart
 
•
We continue to believe that the present trend in Gold could ultimately achieve the samepercentage gains as seen in the 1976-1980 bull market.
•
That move was from $101 to $873. We have already seen a move of almost exactly equallength in nominal terms. (Prior bull market was as above $772 low to high while this time thelow to high move so far is $252 to $1030 or $778)
•
However the percentage change in the last bull market low to high was 764% (A perfectFibonacci ratio interestingly enough).
A repetition of that this time would target a priceof $2,178
Market Commentary
23 January 2009
2
 
 
Gold against the components of the USD-Index
•
This really shows that this is about Gold not just a reflection of the USD. Gold isstrengthening against a strong USD so it has now moved to decisive new highs against thecomponents of the USD-Index (Almost 5% over the March 2008 peak already)
•
Again if we were to speculate that this move could end up being similar in percentage to themove to the 1980 peak (although the ultimate peak in this chart was 1983) you get a movehigher from here towards 167,700 or 120 %
•
While linear extrapolation is dangerous what would the combination of 167,700 here and2,178 above suggest as a USD index level????
•
It suggests a USD-index at around 77 or the USD about 11% weaker than today.
•
In July 1980, 6 months after the peak in Gold the USD-index was at 84 – about 11% lowerthan a number of months earlier. That became a platform for a major bull market in the USDlasting nearly 5 years. In addition after the strong correction in favour the USD in 1991during the economic recession/savings and loan crisis etc (See chart below) we saw onelast leg of weakness in the USD 7 year bear market into 1992 which provided the platformfor a 9 year Bull market.
EURUSD
EURUSD2002-2009?
EURUSD1985-1992
The above overlay remains one of our favourites. It compares the USD bear market of 1985-1992(EURUSD as its components) with the bear market, which began in earnest in 2002 (2002-2009?????) Overall (further details in last week’s Weekly Roundup) we are beginning to suspectthat the next major move for EURUSD is likely to be up giving us one last period of USD weaknessbefore a possible multi year bull market
Market Commentary
23 January 2009
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