SPLAT! After ten weeks, nine of which saw Gold closing with an advance, this week saw the big "selloff". From the spot future close on Friday, February 7 to the spot future close on Friday, February 14, Gold fell exactly $US 18.00 - or 4.87%. In the just over seven trading days since spot future Gold hit an intraday high of $US 384 on February 5, Gold has fallen just over $US 32 - or 8.4%. That's one thing about bull markets, the corrections are usually much faster and more volatile than the upmoves. The other thing about bull markets is that each correction finds support above the previous one, and goes on to post new highs.
Of course, even in the exalted company of bull markets in general - GOLD bull markets are special - they are frowned upon by the financial powers that be. Last week, it was Mr Powell's speech to the UN on February 5 purporting to show that a war with Iraq was inevitable that knocked Gold off its highs. This week, it is the roadblocks to war put in place by the Europeans and now Mr Blix himself saying that there is no evidence of WMD that has knocked Gold down almost $US 20? There WILL be war - sell Gold! There WON'T be war - sell Gold! Very droll, don't you think?
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:
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"Between late March and late November 2002, Gold rose a mere 4.83%. Between the end of November 2002 and February 4, 2003, Gold had risen 19.6%. That's a HUGE acceleration. Gold was due for a correction. We now have the first signs that we are going to get one."
(The Gold Bull Market - February 7)
As all the charts to the left make abundantly clear, we have GOT one. Now, consider a couple of items. First, look at the table above. You can see that the rise in the $US gold price and the fall in the $US index, measured on a percentage basis, are very close. This is much more in balance than was the case a week ago, when Gold's percentage advance had far exceeded the Dollar's percentage decline. Last week on the table above, Gold was up 22.4% while the $US index was down 16.1%. This week, they have almost come back to balance.
The other item is the simple fact that Gold has re-entered its upchannel on the point and figure chart and dipped back towards its shorter-term (20 week) moving average on the weekly bar chart. This gives a much "safer" tone to the upmove, because it is back under much better technical "control".
Back to Gold. 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.
As we said here last week: "Corrections are ever present healthy features of any bull market". The last proper correction we got in $US Gold was back in June-July 2002. After that correction, it took nearly five months - until mid December 2002, for Gold to surpass its June 2002 highs. We don't think it will take that long this time.
CAVEAT:
US markets have a three day weekend this weekend. Monday, February 17 is "Presidents Day". An organized hit on Gold has been known to happen on the first trading day after a long weekend. It is possible it might happen again, especially given the extreme nature of the current global situation. Please remember, whether there is such a "hit" or not, that Gold is in a PRIMARY bull market, and that market is perfectly intact as long as the major trendline holds. That trendline is presently just above the $US 330 level on the $US 1 x 3 point and figure chart - see above - and about $US 325 on the weekly bar chart