"Gold has found solid support in the low $US 340s. Another rally could start at any time. The markets to watch are the currency markets and the bond markets, specifically the Treasury bond markets. So far, the $US has weathered the sell off in the Treasury markets. That can't last. As already stated, foreign holders are now selling US "agency" debt. At the point where the capital raised from such selling is NOT recyled into other $US denominated assets, the $US will resume its fall. That's when the pressure UNDER the $US Gold price will ratchet up again."
(The Gold Bull Market - July 18)
To paraphrase the headline of the current issue of The Privateer - "click -- Click -- CLICK -- C-L-I-C-K!". Yep, that's the "ratchet" we mentioned last week you are hearing. Take a look at the daily bar chart to the left. The "ratchet" actually started last Friday, July 18, when Gold climbed $3.00 to close at $US 347.30. It has continued for the whole of the past week, with the big spurt coming on Wednesday, July 23 when Gold was up $US 8.00 on the day (and Silver up $US 0.28 to crack through the $US 5.00 barrier).
Up until the end of last week, the $US was "weathering" the carnage on the US Treasury debt market quite well. Not so this week. This week, the $US index has fallen 1.70 points from 96.82 to 95.12. The fall came thanks, in large part, to Mr Bernanke of the Fed who chose a speech in California to impress on the world again that the Fed was quite willing to cut rates to ZERO and to start buying up Treasury debt if required. No sooner had those words been uttered than Treasury yields soared, the $US index swooned 1.07 points, and Gold leaped $US 8.00. Oops!
The more Mr Greenspan, Mr Bernanke et al try to reassure everyone about the "underlying" strength of the US economy and the Fed's omnipotence, the worse things get. It seems that, thus far, the only people they are "reassuring" are those that continue to pile into US stocks. For the second week in a row, the Dow rescued a down week by surging on Friday (July 25). We don't know who is buying, but we know who is selling - the "insiders", particularly CEOs and their underlings.
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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If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt. This week, the percentage rise on Gold and the percentage fall on the $US index in this table have come together to almost identical levels.
On the daily chart, the "ratchet action" of the past week is most plainly visible. You can plainly see that the correction of the past six weeks is now over with SOLID support for Gold in the low $US 340s. Also, the shorter-term (ten day) Moving Average has crossed back above the longer-term (twenty day) one - always a bullish sign.
On the weekly bar chart, Gold has confirmed the end of this correction much more emphatically than it signalled the end of the last one at the end of April. On the longer-term weekly chart, Gold has bolted from the bottom to about two-thirds of the way to the top of its up channel. This is a most emphatic reconfirmation of the bull market.
On the point and figure chart, the "almost" triple bottom which Gold established last week has been all the support needed, the price has bolted, in a very similar manner to what it did in early May.
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.
US bond markets are under pressure on all fronts. Treasury bond yields have soared. California State debt paper has now been demoted to BBB status by Standard and Poor's. That's only two steps above outright "junk". The Dollar is falling again. The only thing holding up, so far , is US stock markets. And Gold is rising rapidly again, this time along with Gold stocks AND silver. Not only that, but physical buying of the metals is up substantially.
It will not take much more Fed "reassurance" for Gold to climb to new 2003 highs. Not with bond yields rising, the Dollar falling, and more and more voices being raised warning of the unsustainable deficits. Even if the Fed stays mum for a while, the pressures UNDER the Gold price are building by the day. It's just a matter of time.