- Dugald Malcolm

Montreal, Canada.

With Eric away, I will take the opportunity to revisit one of my favourite topics that I had last addressed in July: gold. Let me reiterate what I had said then, that both Eric and I view gold as an essential part of one's portfolio, with Eric suggesting time and time again that it should represent at least 10% of the portfolios allocation.

One of gold's main utility in a portfolio is to provide a hedge for investors against currency fluctuations. And if ever there was a time to want to hedge against the U.S. dollar, it would be now. It doesn't take much technical analysis to see the abysmal state of the dollar in the chart below. It has been struggling against a declining trend line since March, and suffered the so called "Death Cross" of the 50 day moving average below the 200 day moving average in June.

When last I wrote on July 24th, gold was trading around $950 and was holding firmly above the 200 day moving average. Its price movement, at the time, was confined to a symmetrical triangle consolidation pattern which was poised to break out. Finally, on September 2nd, it did just that, gaining a healthy $22.90 over the previous day's close.

The above consolidation pattern wasn't the only one that the price of gold broke out of at the beginning of September. In further examination, we see that the neckline of a Head-and-Shoulder Bottom Formation was also breached.

Then, after spending the rest of September hovering around the psychological resistance level of $1,000, gold made yet another significant move yesterday. With a strong $24.70 push, the price of gold broke out above it's 17th of March, 2008 intraday high of $1,033.90, to close at $1,042.00.

All this positive technical data truly adds a significant shine to the yellow metal and reaffirms that gold is still king!