Two weeks ago, the Comex spot future swan-dived $US 9.60 to close at $US 352.20 on June 10. Back then, the $US index was still making new lows and there was a stampede into Treasury debt paper which slammed short-term (three and six) month yields well below the 1.0% level. The $US index hit a 2003 low of 92.25 on June 13. Last week, (June 16-20), Gold ran on the spot in $US terms while the $US index recovered from 92.25 to 94.45. This week, the Fed made what was probably the most "telegraphed" rate cut in their history on June 25 but disappointed the markets when they cut "only 0.25% instead of 0.50%.
Two weeks ago, when Gold suddenly dipped $US 9.60 in a day, money was pouring INTO Treasury debt paper. Over the past week, when the Fed actually cut and Gold fell $US 10.80 on the week, money was pouring OUT OF Treasury debt. Two weeks ago, the entire Treasury yield curve fell to its lows for the year. The last seven or eight trading days has seen a bloodbath, especially beyond the three and six month paper.
As a lot of people know, Bonds can't go lower than 0.00% in yield and this gives an ultimate ceiling to a bond rally. There isn't much "upside" left, is there. Over the past week, that realisation has begun to dawn.
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:
|
The discrepancy between the percentage gain on Gold and the percentage loss on the $US index continues to widen. Even so, Gold's worth as a means of preserving purchasing power in times of monetary "disequilibrium" is eloquently shown on this table.
On the daily chart, you can see that Gold is in a "sine wave" pattern with the drop in June being about half the rise in May.
On the weekly bar chart, Gold has retreated back to the bottom of its post December 2001 upchannel on the longer-term weekly chart. Right now, Gold is right at the level of its shorter-term (20 week) moving average.
On the point and figure chart, Gold has dropped back below the bottom of its acclerated uptrend, just as it did in March/April. The lower uptrend line, which defines the entire Gold bull since its bottom in April 2001, stands at about $US 327.
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.
As we stated in this analysis two weeks ago: "All bubbles burst, and the longer they take to burst, the more damage results from their bursting. This Gold bull market got going with the bursting of the $US bubble at the beginning of 2002. The timing of its next leg upwards is now clear, it will come with the bursting of the bond bubble.".
It is as yet too early to call a "bursting of the bond bubble", but the action over the past week plus has been ominous, to say the least. Never forget, government debt paper has long been touted as the ultimate "safe haven". When, not if, THAT article of faith gets "popped", the potential for major financial earthquakes escalates rapidly.