i've become increasingly interested in this measure as an important key to understanding the current gold market. read the bit below and you'll see why i'm willing to give bluey's formula some credit ... i think if we understand this well we can do some good things. i tried but was unable to figure out how to create a DIVG chart on stockcharts ... if anyone figures it out please let me know
DIVG: The Fed's Main Game
The Fed is managing the dollar's fall to the rising gold price and Fed Governor Bernanke actually said as much this weekend in San Diego. They are managing the DIVG, just as I suggested back when I first started tracking this important metric.
It is gratifying to hear the Federal Reserve's newly anointed money luminary, Governor Bernanke, formally admit that the DIVG is their targeted metric in the gold intervention game. The day-to-day gold price is less important in my view than the DIVG's 200-day ma.
The DIVG's 200-day moving average
Note the still rising 200-day moving average (yellow trace). We still have more room to rise... perhaps up to a DIVG of 360 from today's 355 before we arrive at an important point, the former 200-day ma peak at 326. If we break through that level it will suggest that a new 200-day ma defense level has been set.
The DIVG 200-day moving average has reached a critical point in its upward trajectory.
The 200-day ma (shown by the yellow trace) is poised to pierce through its previous high at DIVG=323. I can be exquisitely confident that this important metric will keep on going higher because there is far too much "weight" above 323 than below it (when examining the last 200 days).
Therefore, the only remaining question is how much higher will the DIVG go? Recall that the DIVG has been at 600 in the recent past (1980s). The MCDI then was near 60. If we experience another such dollar meltdown to 60 (a 28% fall from today's 83.6) the gold price will be stationed at $544. This assumes a zero shift from paper assets into gold and other precious metals. In other words, gold would only maintain its relative pricing with the falling dollar. Should there be only a modest relative appreciation of gold against paper currencies we will see much higher gold prices very soon.
But we see the DIVG's pattern (second chart) as acting differently from the last cartel attack in September 2003. The action at DIVG = 355 trends upward where the Sept. trend was slightly down. These two patterns give me a great deal of comfort that the cartel is deep into a retreat mode and in no position to launch a counterattack.
So how high is high for the cartel's next defense line? Only the Fed and Treasury know for sure.
As investors we do know that the pressure being brought to bear on the gold cartel rises each day. Moreover, we know that the price discovery pressure will act relentlessly to pry its way to the truth and that truth will cause a swift move to gold and silver that not even the mighty Federal reserve can stop.
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