After eight consecutive weeks, Gold has had a "down" week this week. Of course, it's not much of a down week. On Friday, January 24, Gold closed at $US 368.40. On Friday, January 31, it closed at $US 368.30. That's a ten cent drop on the week. However, since the $US index recovered the 100 level this week, after being down to 99.45 last Friday (Jan. 24), Gold rose in terms of every other major currency this week.
As you can see on both the daily bar chart and the point and figure chart to the left on this page, Gold has spent the week trading all around the $US 370 level. To see why this $US 370 level is proving a resistance point, check out these two charts:
On the $US 5 x 3 chart, Gold has reached the DOWNTREND line drawn through the 1987 and 1996 bull market highs. On the $US 2 x 3 chart, Gold is almost at the top of its post April 2001 upchannel. We would certainly expect resistance somewhere around $US 370, and we have got it. But so far, Gold's "recoil" has been mild indeed, only just enough to show up as a simple downturn on the $US 1 x 3 chart on this page.
Meanwhile, on the weekly bar chart, Gold has spent the entire week above the TOP of its uptrend. On this chart, first support for Gold comes just below the $US 360 level.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
|
Please remember, Gold hit $US 302.20 on March 27, 2002 and as recently as November 29, 2002 had only risen $US 14.60 or 4.83% to $US 316.80. The GREAT acceleration of the $US Gold price has come over the past two months. Last week, the $US index fell below 100 for the first time since January 2000. This week, the $US index regained the 100 level on January 31, rising 0.39 points to 100.14. There is no obvious reason for this "turnaround", especially in the wake of Mr Bush's State of the Union address which was one long promise to spend and Spend and SPEND. Oh, we forgot, newly confirmed Treasury Secretary Snow reiterated the "strong Dollar policy". That must have done it, right?
Suffice it to say, we don't think this new found "strength" in the $US will last very long. Just as surely as Gold is in a primary BULL market against the $US, the Dollar is in a primary BEAR market (as measured by the $US index) against the currencies of its major trading partners.
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:
|
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.
Given the fact that Gold has been going straight up for two months, and given the fact that it has reached resistance points on some major long term charts (see above), we would not be surprised in the slightest to see a correction in the next week or two.
"The next week or two" is, of course, the time period during which the Iraq war is likely to be resolved. Mr Powell "comes clean" at the UN on February 5. The UN weapons inspectors report to the Security Council on February 14, and many in Washington are hinting that this is Mr Bush's deadline. And on February 15, a fourth US aircraft carrier reaches the Gulf and US troops alone (the Brits and the Aussies have troops there too) will reach 150,000.
So, by mid February, George W Bush will be as ready as he's ever going to be. At that point, we will get the test of whether Gold's strength is merely a product of uncertainty over the prospect of war. It isn't, of course, but there will almost certainly be an attempt to "prove" otherwise. Don't buy it. Please remember, Gold is in a PRIMARY bull market. It has got a LONG way to go yet.