Last week (August 18-22), Gold hardly moved and the Dollar boomed with the $US index up to a four month high of 99.00. This week (August 25-29), spot future (now October) Gold rose a very healthy $US 12.70 while the Dollar held firm just below the 99.00 level until August 29 - and then fell away to close the week at 98.10. Gold's close of $US 375.80 on August 29 was just $US 3.20 below its 2003 high close of $US 379.00 set way back on February 4. In intraday terms, Gold's intraday high of $US 378 on August 29 was exactly $US 6.00 below Gold's 2003 intraday high of $US 384.00 set on February 5.
So, Gold is "knocking on the door" again. At $US 375.80, the spot future price is comfortably ($US 3.60) above its May high and closing in on its 2003 high. More encouraging is the performance of Gold stocks. Gold stocks did NOT react to the May Gold run up. Between April 30 and May 21, spot future Gold rose from $US 339.40 to $US 372.20 or 9.7% while Gold stocks (as measured by The Privateer's XGO index) could only manage to rise from 1347 to 1429 over the same period, that's a rise of 6.1%.
In August, the situation has been RADICALLY different. Between August 1 and August 28, spot future Gold rose from $US 346.10 to $US 370.60 - up 7.1%. The Privateer's XGO Aussie Gold stock index rose from 1578 to 1764 - up 11.8% - between August 2 and August 29. The XGO has not yet reflected Gold's $US 5.20 rise on August 29. And most important of all, the XGO hit a new 2003 high (its highest level for SIX YEARS) way back on August 11 and has continued to rise from there. Historically, Gold stocks ALWAYS precede Gold. Historically, a new upleg in a Gold stock bull market is ALWAYS followed by a new upleg in a Gold bull market.
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.
As you can see on the daily bar chart, the two-week consolidation between $US 360 and $US 365 has been shattered this week. Gold jumped straight to the $US 370s and in early trading on August 29, got very close to the $US 380s. The "shorts" on the Comex (more on that later) are being squeezed very tight.
On the weekly bar chart, take a look at the dotted red line connecting the February and May 2003 highs. Gold has well and truly broken above that this week, closing above the May high and closing in on the February high. The longer-term chart shows that the series of lower highs and higher lows set since the February 2003 has now been broken with Gold above its previous (May) high and now back to the TOP of its post December 2001 uptrend.
This is what we had to say about the point and figure chart last week:
"The point and figure chart had been compressed into a very tight trading range. This range will be broken to the upside on any close above $US 367 and to the downside on any close below $US 358. This chart CANNOT keep on going sideways so Gold must break one way or the other."
Indeed Gold did break - UPWARDS
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.
A lot of "Gold bugs" are nervous at this juncture. Gold is getting very close to its 2003 high again, after seven months of trying to exceed it. The imbalance on the Committments of Traders on the Comex has blown out to epic proportions. As of August 26 - the latest data available - speculators were 9.3 to 1 long while commercials were 2.2 to 1 short. This type of imbalance is a feature of Gold market tops in "normal" circumstances. The commercials have, however, been known to be wrong.
Finally, there is that always dangerous event, a long weekend in the US. US Gold trading will not resume until Tuesday, September 2, the day after Labor Day. That means that the "powers that be" have three days to come up with a way to dampen down Gold.
If they think they can "clamp down", they will. The problem is that it is becoming increasingly common knowledge over most of the world, and even inside the US, that the ONLY "engine" of US economic growth left is continually accelerating government borrowing. And everybody knows what happens to a borrower when he or she finally runs out of creditors, no matter how "big" the borrower is
Meanwhile, Gold is "knocking on the door" and Gold stocks are well embarked on a new upleg in their bull market. We repeat, Gold stocks ALWAYS lead Gold higher.