"By all technical precedent, Gold should remain in its upchannel - that is - it should not break below the bottom trendline now set just below the $US 370 level. $US 370 is now established as support on all three charts."
(The Gold Bull Market - October 17, 2003)
It's a grind, but support points are holding. Last week, Gold held its $US 370 support and leaped $US 17 to a new 2003 high. This week, Gold has unsuccessfully had a go at the $US 390 level (it opened above $US 390 on October 30 on the Comex but couldn't hold it) and has settled back to close at $US 384.60 - down $US 4.30 on the week. For the week, the $US index gained 1.5% - from 2003 lows while $US Gold lost 1.1% - from 2003 highs.
One could call this a "holding pattern". As we pointed out in our main Gold commentary last week: "To keep Gold from breaking loose, the financial powers that be had better keep it below $US 400. Above that, the potential is huge for Gold to break free of restraint and REALLY take off."
Why? Many reasons, one of which is the simple fact that Gold's performance in $US terms this year is lagging BADLY behind base metals, and indeed behind commodities of all descriptions. A high copper or zinc or nickel price is not seen as an inflationary indicator. A high GOLD price is. And since the FOMC has just assured us that they can keep US interest rates at their present 40 plus year lows for "a considerable period", they don't want any inflationary indicators.
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 bar chart, you can see that as the week wore on, daily volatility increased, with the daily trading ranges on both October 30 and 31 being almost $US 10. You can also see that the "buy signal" given last week with the shorter-term (10 day) moving average crossing back above the longer term (20 day) one remains very much intact
On the weekly bar chart, there have now been two attempts to break through the $US 390 level in the past four weeks. After the first one, Gold corrected down to $US 370. Afther the second one, Gold has, so far, corrected back down to just above the $US 383 level. Of all the corrections so far this year, the correction from the September 24 high is by far the shortest. It has taken Gold only a month to regain its highs. Let's see how long it takes Gold to surpass them.
On the point and figure chart, the four red "O"s on the chart represents Gold's fall over the past week. The chart does not quite show a double top, Gold having moved one "X" higher than its September high when it closed at $US 388.90 last Friday, October 24. Gold could turn up anywhere from its present level all the way down to $US 370, it is unlikely to go below its solid support at $US 370. By now, it should be pretty obvious that the resistance level is $US 390.
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.
When Gold rose $US 5.30 to $US 387.20 on September 22, it established a new upleg in its post April 2001 bull market. It did this by closing significantly above its previous 2003 high which had been set nearly nine months earlier in early February. Five weeks after it reached that level, Gold remains in a tight range just below $US 390. First a close above $US 390, then a close above $US 400, then it's off to the races. We don't know how long that will take. We are certain it will happen, it's just a matter of time.