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'GEO' Monitor - Update

By Claude Biava

March 13, 2008

The GEO Monitor
In this page the GEO currecies, Gold Euro and Oil, will be monitored weekly against certain historical parameters that may help identify extremes in price or exchange rate, that is the points at which the trend could be expected to pause or temporarily reverse. This measured monitoring is done for the benefit of those readers who may wish from time to time to make adjustments to their portfolio by taking advantage of short-term corrections. However, as often emphasized in this site, the major overriding trend for Gold will remain as indicated by the gold barometer.

A note about the Euro PPP parameter

With regard to the PPP (Purchasing Power Parity) parameter used in the Euro Chart (Chart 3) it is important to note that, before using this parameter, an exchange of views was carried out with Mr.Luciano Fiordoni in order to benefit from his opinion regarding the validity of the PPP data available from UBS as well as some general aspects of the current situation of the Euro. Mr. Fiordoni is Chief Economist of one of the major Banks in Europe and the oldest Bank in the World: the Monte Paschi di Siena Group http://english.mps.it/

In an email exchange, Mr. Fiordoni confirmed that the PPP is commonly used in Europe unlike in the USA and that the data calculated by UBS are indeed reliable. To one of our fears, namely the possibility of a surprise currency intervention by the ECB to stop or slow down the strong ascent of the Euro, Mr. Fiordoni replied that the ECB will not be likely to intervene since at this juncture it regards the Euro's appreciation as an important anti-inflation defense against rising oil prices. Mr. Fiordoni volunteered further his opinion the Euro/USB exchange rate will surpass 1.6 by the end of this year.

The parameters used for the GEO monitor have been updated as of March 7, 2008 and are displayed in the following Charts

Chart 1: Gold

The percent of Gold price above the 48 wks mavg has been used to identify possible short-term price tops based on earlier experience. A 39-40% upper limit has been chosen to monitor such tops. As of March 12 this parameter is slightly lower than last week (25.7% vs. 27.2%). Gold is enjoying a second week of well deserved R&R most likely in preparation of joining Oil and Euro in a fling upward.

Chart 2: OIL
The percent of Oil prices above the 48 months mavg has been used to identify possible short-term price tops based on earlier experience. An 80 % upper limit has been chosen since it has consistently marked short-term price tops in the past.This parameter climbed smartly so far this week from 64% to 72.6%, thereby approaching fast the 80% extreme.

Chart 3: Euro
The percent of EURO/USD exchange rate above the PPP has been used to identify possible short-term price tops based on earlier experience. Percentages in the range of 32-35 % above PPP will be monitored for possible tops based on the historical experience as illustrated in the Chart.
So far this week this parameter climbed to 29.5 from 28 approaching fast the first extreme of 32% above PPP.

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