Two weeks ago, Gold had established solid support in the low $US 340s and a rally was signalled by the $US 3.00 rise to $US 347.30 on July 18. Gold duly climbed as high as $US 367.70 - its intra day high last Monday (July 28), before closing for the day at $US 364.90. Then, the "funds" took a hand. Gold has been plummeting ever since July 28, the climax coming in late Comex trading on Friday, August 1 when the spot future price dived $US 7.90 to close the week at $US 346.10. This is spot future Gold's lowest close since July 17 and a fall of $US 16.70 over the past week.
Last week, Gold was going up on the back of a number of developments. The bloodbath in US Treasury debt markets had just been made worse by Fed Governor Bernanke who reiterated the Fed's determination to cut rates to ZERO and to start monetising Treasury paper if necessary. These comments added a $US bloodbath to the Treasury bloodbath as the $Us index fell 1.70 points over the week.
This week, the Treasury bloodbath continued but the US Dollar recovered all the ground lost last week, and then some. Between July 25 and July 31, the $US index jumped 2.02 points from 95.12 to 97.14. Then, when the $US faltered slightly on August 1, falling 0.27 points to close the week at 96.87 - Gold REALLY got hammered, falling $US 7.90 on the day.
The blowout on Treasury debt yields over the past six weeks, coming as it does in train with a gigantic spurt in US government deficit spending, is the single most dangerous market reaction to the present global fiat money system which has been seen since the US abandoned Gold in 1971. Next week, the Treasury is faced with the NECESSITY of selling $US 60 Billion in new Treasury debt in their refunding auctions.
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.
On the daily chart, you can plainly see that the old market saw: "up by the stairs, down by the elevator", doesn't apply in this case. Gold went up by the elevator, it has come down by the elevator. Last week, Gold was up $US 15.50. This week, it's down $US 16.70.
On the weekly bar chart, the message of the daily chart is repeated. Gold signalled the end of its correction last week and has come back to test support this week. You can see this more clealy on the longer-term weekly chart, where Gold is right back down to the bottom of its post December 2001 upchannel.
Again, the message is repeated on the point and figure chart on this page. But for the REAL message, take a look at the $US 5 x 3 point and figure chart. Look at the line connecting the 1987 and 1996 tops. You can see that Gold has been trying to break above that line ever since it reached $US 380 at the beginning of February. Any penetration above the line would be the signal for a Gold price bolt.
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.
The Fed has made it crystal clear that they regard the main threat to the US "recovery" to be "deflation". Mr Greenspan and Treasury Secretary Snow have made it very clear in recent days that they think that the US is well on the way to recovery. Hanging over all this like a vast and threatening cloud is the Treasury debt yield blowout, which has migrated over to the swap market and to US mortgage rates, drying up the US consumer's main source of revenue - mortgage refunding.
A rising Gold price would give the lie to the Fed's talk of "deflation" more than anything else could. A rising Gold price would also threaten the viability of Treasury debt paper. If the Treasury cannot find buyers for their debt next week, they will be forced either to WITHDRAW it or to sell it directly to the Fed, which would create the "money" needed to buy the Treasury paper out of ever thinning air. The Bush Administration, the Fed, and Wall Street are doing everything humanly possible to ensure the "success" of this Treasury refunding. One of the most important things they have done this week is to deep six Gold.