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Memetics Reveals Gold's Next Move

Written By Brian Hicks

Posted July 19, 2011

It’s all about the Benjamins, baby.

Last week, the prime meme pushing the dollar down was “QE-1-2-3-whatever.” That is to say the herd had gleaned from careful reading of Ben Bernanke’s statement to Congress that the Fed would somehow, someway, ride to the rescue the flat economy with another trillion or so free dollars.

Dollar Turns the Next Corner
click images to enlarge

Thus, we saw the dollar fall and inherent reciprocal rises in gold and oil.

Ruination on Both Sides of the Atlantic

This week, the grand battle for hearts and minds is drifting in a slightly different direction.

Now a bit of “euro-fear” creeps back to the forefront of the herd’s mass consciousness as Italy joins Greece, Ireland, Spain et al. on the brink of sovereign insolvency.

The graveside humor here is that both sides of this “fear equation” are totally justified.

The euro really does represent an amalgam of Europe’s worst ideas and tendencies crammed into a single pay envelope. In the long run, euro holders are most probably well- and truly screwed.

And on this side of the Atlantic, Washington is rubbing its hands with glee at the whole euro crisis; the falling euro offers cover for their next dollar-printing binge.

The question is, Who wins when two of the world’s reserve currencies are for losers?

Gold Tops the Charts

Golds New HighThe answer is easy: gold, which saw futures contracts set another new all-time high at 1607.9.

Now, I know that the vast majority of this column’s readers are interested in one single question this week…

Was this the top?

Should they sell some of their sizable gold holdings into this latest gold spike, or is this just another mile marker on a years-long road to further gains?

Memetics’ Unique Window

Memetics offers us a unique window into this puzzle.

Let’s start with the latest search and press figures from Google (and thank the gods for Sergey Brin and Co. Before them, I used to have to tot up stuff like this with a fountain pen and a yellow pad).
Gold Searches Peak
Note that while current interest in the U.S. greenback is double the euro, gold searches are running double the dollar and quadruple the euro — and still rising, week after week.

These signals quantify the long and strong fascination with the shiny stuff undergirding most the minor perturbations in the market.
Gold Futures Technical Chart
Still, the nagging question remains: Does gold have to retrench after this last high?

The answer lies in a fascinating detail hidden deep in gold futures’ technical chart.

Note that most recent gold futures highs have been accompanied by a strong surge in the money flow oscillator, an indicator that integrates both price change momentum and volume change.

This time, however, gold is rising early in the oscillation cycle, indicating the strong possibility of further increases as the herd swells in behind the advance already in place.

Straight answer: Gold has more upside both in the short term and long term.

Good luck and good hunting,

Adam Lass
Editor, Wealth Daily