Last week (June 9-13) was notable for a sudden Gold dive on June 10 when the Comex spot future swan-dived $US 9.60 to close at $US 352.20. It was also notable for a stampede into Treasury debt which slammed short-term (three and six) month yields well below the 1.0% level. All this was despite the fact that the $US index was still falling. It hit a 2003 low of 92.25 last Friday (June 13). This week has been notable for increased day to day volatility in the Gold price, an increase in Treasury yields - especially at the longer end, and a recovery of the $US. Gold hardly moved on a week to week basis - as you can see on the weekly chart to the left. But the $US index "soared" from 92.25 to 94.45 over the week.
As you can see on the daily bar chart, with the exception of the big downmove on June 10 mentioned above, Gold has been very "sticky" on the downside since it hit its late May intraday highs in the mid $US 370s. In the two weeks or so since the ECB lowered rates and a Fed rate cut became a certainty, Gold has been staking out a "trading range" in the $US 355-365 area.
Next week, of course, the Fed has to "fish or cut bait". There is no doubt of the outcome, and the doubt about the "size" of the outcome is diminishing. As of June 20, 13 out of 22 primary Fed dealers expect a 0.50% cut (to 0.75). Treasury yields have been slowly rising this week as it dawns on investors that official rates of 1% or less don't give bonds much more breathing room on the upside. The Dollar has been rising on yet another bet that THIS rate cut (unlike the previous 12) will do the job and rekindle "growth".
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:
|
For the first time in over a month, the $US index DIDN'T hit a new 2003 low this week. On the table above, the percentage loss on the $US index is still far bigger than the percentage gain on $US Gold, but the discrepancy has closed a bit due to the upmove on the $US.
On the daily chart, Gold has dropped below both its moving averages and the shorter-term (10 day) moving average (MA) has dropped back below long term (20 day) MA. As you can see, the intraday price moves have been comparatively volatile.
On the weekly bar chart, Gold remains in the middle of its up channel on the longer-term weekly chart. As you can see, the trading range this week is smaller than it was last week with Gold essentially trading sidways.
On the point and figure chart, the "sideways action" is even more pronounced. Gold is being pushed sidways on this chart towards its upchannel line. Any break of the descending pattern of "Xs" and "Os" would be bullish on this chart. On the downside, Gold is firmly supported in the low $US 350s by the bottom of the upchannel.
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.
Friday was a "quadruple witching day" on US stock markets and the indexes barely moved (the Dow rose 21 points). Treasury yields are up (slightly) and prices down on the certainty that the Fed will cut rates. The $US is up comparatively strongly on expectation that the Fed will cut rates.
On Wednesday, June 25, the expectation ends with the Fed announcement. Wall Street is going to have a hard time clinging to the hope of "just one more rate cut will do the job" if the Fed cuts by 0.25% and an even harder time if the Fed cuts by 0.50%. US bonds are going to have a VERY hard time sustaining their bubble, with US rates far into NEGATIVE territory in REAL terms. The $US is going to have a hard time hanging onto its gains for the same reason.
As we stated in the previous installment of this analysis: "All bubbles burst, and the longer they take to burst, the more damage results from their bursting". The bond bubble will burst when investors realise that US rates CAN'T fall any further. That could happen on June 25 or at any time after that. And of course, when the bond bubble bursts, the housing bubble won't be far behind. That doesn't leave much - except Gold.