"If $US 405-407 does not hold, then Gold is in all likelihood going to challenge $US 400 and may drop below it."
(The Gold Bottom Last Week - January 23)
Of course, Gold never got the chance to "hold" the $US 405-407 level. Gold opened this week at $US 406.70 and then rose as high as $US 414.60 (closing basis) on January 28. January 28 was the day of the FOMC meeting. As soon as Gold finished trading on January 28 on the Comex, it swooned $US 5.00 or so on the Access market. Then came January 29, the day AFTER the FOMC meeting. Gold took out both the $US 405-407 AND the $US 400 level, closing down $US 16.10 on the day at $US 398.50.
That was the biggest one day fall (in numerical terms) in the past six years. By the end of the week, Gold had regained the $US 400 level to close at $US 402.20. That's a fall of a "mere" $US 5.80 on the week.
Two weeks ago, right after a G-10 meeting at which the speculation began that the Europeans might be on the verge of either lowering their rates and/or intervening in the currency markets to assist Japan to support the Dollar, Gold fell $US 13.70 in one day. Now, right after an FOMC meeting in which a small change in the wording of the press release sets off a storm of speculation that the Fed might raise rates "sooner" than expected, Gold falls $US 16.10 in one day. Volatile, isn't it?
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 came with the break above $US 420 in early January 2004, will be a much bigger "sea change" than breaking through $US 300 was.
On the daily bar chart, you can see the build up in daily volumes which began when Gold reached its January highs and peaked with the big sell off of January 29. The shorter-term (10 day) moving average is now well below the longer term MA with the price below both.
On the weekly bar chart, you can see that Gold has broken below the steepest of its (three) uptrend lines and has bounced off its shorter-term (20 week) moving average. For the levels of the 20 and 40 week moving averages, and a better look at the Gold bull market as a whole (which is still perfectly intact, have a look at the longer-term weekly chart.
On the point and figure chart, the first sign of support has been signalled with the upturn just above the steepest of the uptrend lines. If Gold does not dip below its January 29 close of $US 398.50, it will mean that this uptrend line has held. If Gold heads lower, the next uptrend line is presently just above the $US 390 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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Clearly, we now await confirmation of a $US 400 support level for Gold, or if Gold is going to break back below $US 400. $US 400 is an important psychological level, and a break back below it and then below the January 29 close of $US 398.50 would shake up the Gold markets as investors who were so recently celebrating a break above $US 400 would face the possibility that it might once more become the "ceiling" that it was before the breakthrough last December.
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. The only previous precedent is the two Gold bull markets of the 1970s, and Gold appreciated by several hundred percent in each of them. This bull market is STILL in its early stages.