Gold has now closed higher for eight consecutive weeks, and this week, it broke through the TOP of its post April 2001 upchannel. You can see this on the Gold point and figure chart below and also on the longer-term weekly bar chart. When an upchannel is breached by a climbing price, the resistance point, the top of the upchannel, becomes a SUPPORT point. Right now, that support point is $US 360 on the $US 1 x 3 point and figure chart and about $US 356 (where Gold closed last Friday - Jan 17) on the weekly bar chart.
Gold is accelerating upwards in $US terms while the $US itself is accelerating downwards against the currencies of its major trading partners. The blame for this, and for all the other vicissitudes afflicting US financial markets (including the 238 point dive of the Dow on Jan 24) is still being sheeted home to uncertainty about Iraq.
The implication here, of course, is that once that "uncertainty" is resolved, most probably by the onset of war, then the present "overbought" condition of Gold and "oversold" condition of almost everything else will come back into "equilibrium". Or, to put it bluntly, Gold will fall and everything else will rise, just like what happened in January 1991 when Gulf War I took place.
This message is certainly resonating amongst much of the investing public, including the "goldbug" portion of the investing public. Gold is shooting upwards, but "poor man's Gold" - silver - certainly isn't, and neither are Gold stocks.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 on March 27, 2002:
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This week, the $US index fell below 100 for the first time since January 2000. This week also, Gold and the Dow became near mirror images of each other, with the Gold percentage rise almost exactly duplicating the Dow percentage fall. Yes, Gold has risen further than the $US index has fallen on this comparison, but not very much further. To this point since Gold broke above $US 300 to stay back in March 2002, it has done little more than provide a "hedge" against the fall of the $US.
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
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You will find charts of the $US index and Gold here for comparison. What you are seeing is not a move away from "normalcy", as most of the "gold is overbought" people would have it, but a move back TOWARDS normalcy.
There have been 37 trading days since the end of November, when Gold started its accelerating climb. Over that period, Gold has closed up for eight consecutive weeks. On a daily basis, it has been up on the day 27 times and down on the day 10 times, a "winning" percentage of 73%. And it has risen from $US 316.80 to $US 368.40 on a closing basis, that's up $US 51.60 or 16.3%.
That's pretty good for less than two months, especially given Gold's history since 1996. But "uncertainty" about the prospects of war are a lot more than two months old. Mr Bush started making belligerent comments about Iraq more than a year ago. Gold has been going up since April 2001 when it stood at $US 255. The Dollar has only been going down since February 2002. What has caused the acceleration of Gold over the past eight weeks is not "uncertainty" about US policy in regard to Iraq, it is a growing CERTAINTY amongst investors, especially "foreign" investors, that US policy in regard to its economic, financial, and monetary policy is in chaos.
With the penetration of its uptrend, Gold's support levels in $US terms are now much closer to the present action. Even if these close support points are breached, that will only bring the metal back into its upchannel. To breach its uptrend altogether, Gold will have to go all the way down to the BOTTOM of this upchannel. Right now, that's just above $US 320 on the weekly bar chart and about $US 326-27 on the $US 1 x 3 point and figure chart. As we see the charts, this Gold BULL MARKET is very safe, no matter how desperate the financial powers that be get.