There's an old adage in technical analysis which states that a major resistance level, once decisively broken through, becomes a major support level. This week saw a very good illustration. While the $US 400 level for Gold has not yet been decisively broken, spot future Gold has been trading above $US for the entire month of December.
Last week, spot future Gold closed at $US 409.40. Then, over the weekend in the US came the announcement that Saddam Hussein had been captured in Iraq. When Asian Gold trading began on Monday, December 15, the spot price plummeted straight down to just above the $US 400 level. After that, it recovered in later Asian trading and then European and US trading. By the close of trade on Monday, December 15 in the US, Gold had regained almost all of its Asian losses. It closed in New York at $US 409.20 - down $US 0.20 from its close on the previous Friday.
At its high spot future close of the week of $US 412.00, Gold was only $US 2.00 below the top of its previous 1996 bull market ($US 414.00) on a spot future closing basis. Gold closed for the week at $US 409.20 - exactly the same level as Monday's close and a loss on the week of $US 0.20.
Having seen Gold trade above $US 400 for three weeks, and bounce off that level in Asian trading in the aftermath of the announcement of the Saddam capture, it is becoming a pretty safe statement that $US 400 is now providing MAJOR support.
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.
And here we are, more than $US 100 (or 33%) higher. We are confident that the REAL breakthrough of $US 400, which will come with a break above $US 420, will be a much bigger "sea change" than breaking through $US 300 was.
Consider the fact that despite a 2003 gain of 23.22% the Dow is STILL below the level it was back in late March 2002 when Gold finally decisively breached the $US 300 level. Gold is now more than $US 100 higher than it was then.
On the daily bar chart, you can see that there has been no correction at all registered in $US Gold trading in New York this week. Gold investors who anticipated a sub $US 400 Gold price (and a soaring Dollar and Dow) in the wake of the Saddam capture have been pleasantly surprised. What IS shown on this chart is the fact that Gold is now in the process of wearing away its old 1996 $US 414 Bull market high. Gold traded above $US 410 on an intraday high basis every day this week.
The weekly bar chart shows almost identical intra day highs and spot future closing levels in each of the past two weeks. Gold is battling with its LAST technical resistance level, the 1996 bull market top of $US 414.
This is what we said about the point and figure chart last week: "A Gold spot future close of $US 411 or higher, 3 "Xs" above the previous high, will confirm that this correction has held above $US 400. On December 17, spot future Gold closed at $US 412, thereby setting up a breakaway gap on the chart and confirming support ABOVE the $US 400 level."
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.
With seven trading days left to go in 2003, the markets are now winding down for the holiday season. As already stated, the break above $US 400 is not yet decisive, but a challenge of the previous bull market top of $US 414 is far more likely over the rest of this year than another test of $US 400.
We wish you a very Merry Christmas. There will be one more edition of this page for 2003 on December 26. We'll save the "Happy New Year" for that one.