When the Comex Gold market clanked back into gear on Tuesday, January 20 - after the Martin Luther King holiday on Monday, Gold took a fairly predictable bounce, rising $US 5.90 to $US 412.90. The rest of the week has been spent slowly giving that rise back to the point where Gold closed the week at $US 408.00 - $US 1.00 above the level where it closed last Friday (Jan 16).
The Gold moves have echoed moves in the $US - up to a point. On Tuesday, when Gold was rising $US 5.90, the $US index was falling 1.07 points to 86.98 - reversing nearly all of the 1.18 point rise of the previous Friday. From that point on, Gold and the $US fell together, with the Gold price retreating $US 2.80 on Jan 20-21 and the $US index falling another 0.89 over those same two days. Then, on Friday, Gold retreated another $US 2.10 but the $US index rose 0.77 points. The catalyst for this $US turnaround? A rumour that the European Central Bank "might" be considering lowering its interest rates - if exchange rates prove "disorderly".
One Central Bank, the Bank of Canada, DID lower rates on January 21 - by 0.25% to 2.50%. Last year, the Bank of Canada "broke even", raising rates twice early in the year and then negating the rise with two cuts later in the year as the $C continued to surge against the $US. The latest Canadian rate cut, which brought Canadian rates to within 150 basis points of US rates, didn't hurt $US sentiment either.
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 has now come with a break above $US 420, will be a much bigger "sea change" than breaking through $US 300 was.
On the daily bar chart, the big selloff of January 15 (down $US 13.70 on the day) has had its effect with the short-term (10 day) moving average (MA) crossing below the longer-term (20 day) MA. This is the first time that the 10 day MA has been below the 20 day MA since October 2003 - just before Gold began its challenge of the $US 400 level.
On the weekly bar chart, Gold has had a flat week, with the intraday low this week slightly higher than the intraday low last week. You can see the previous big one day fall clearly on this chart ($US 14 in one day in early October last year). Back then, it took three weeks for Gold to regain previous highs and six weeks for it to break above them. On the chart, all uptrend lines are intact, the steepest one supporting Gold right about the $US 405 level.
On the point and figure chart, we have a first sign of weakness. After retracing its previous upmove, Gold has turned up again only to suffer a downturn WELL below its previous highs. If Gold continues to fall from here, and particularly if it goes below its previous lows to close at $US 405 or lower, a challenge to the $US 400 level is likely. Note that on this chart, the steepest uptrend line presently stands at about $US 395.
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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If $US 405-407 does not hold, then Gold is in all likelihood going to challenge $US 400 and may drop below it. Please note that the steepest uptrend lines on the weekly bar chart and point and figure chart support Gold at between $US 395 and $US 405.
But in considering this possibility, it is VERY important to keep in mind that Gold broke decisively above its previous bull market high BEFORE this "correction" took place. We reported on this even when it happened in our Gold Bull Market commentary update for January 5. For the first time since Gold hit its all time high in $US terms in January 1980, a Gold bull market has gone HIGHER than the one which preceeded it. This is a MAJOR change, and makes us VERY confident that this bull market has a LOT further to go. Right now, its just a question of seeing how long this correction takes and how deep it goes.