On Friday, February 13, spot future Gold reached as high as $US 416.00 in trading early in the day but then fell away (when a European bank bought $US 2 Billion for Euros) to close the week at $US 410.30. After a three day weekend for Presidents Day, Gold rose $US 5.70 on Tuesday, February 17 to close at $US 416. It slowly subsided from there until Friday - when the Japanese government suddenly announced a heightened alert against a "terror attack". Gold promptly fell below $US 400, closing on February 20 at $US 397.50.
You can see the stark nature of this sudden fall on all three charts on this page. But consider further our strategic $US 5 x 3 chart. On Tuesday, when Gold closed above $US 415, this chart turned up. Three days later, when Gold closed back below $US 400, the chart turned down again.
I have been compiling Gold charts for more than 20 years. I do not remember anytime over that entire period where an upturn was followed by a downturn on a $US 5 x 3 chart inside a week. This is REAL "volatility".
A short two weeks ago, the G-7 nations were mouthing platitudes about the undersirability of "currency volatility" and trying to maintain the fiction that they favoured exchange rates set by the markets. This in turn, was a week after the Japanese had finished spending the equivalent of $US 72 Billion in the MONTH of January intervening in those same currency markets.
As the old saying goes, actions speak louder than words. "Volatility", in the context used by the G-7, is a euphemism for a single FALLING currency, and that currency is the US Dollar. A rapidly CLIMBING US Dollar is, of course, not seen as being "volatile". Conversely, "volatily" in the context of Gold is a euphemism for a rapidly climbing $US Gold price. A rapidly FALLING $US Gold price is anything but "volatile".
When the exchange value of a Dollar or the price of a piece of financial paper or a commodity or for that matter a precious metal is going the "wrong" way, it is "volatile". When it is going the "right" way - up for financial paper, down for precious metals - it is not. A falling US Dollar is "volatile". A falling US stock market is "volatile". Falling Treasury bond prices are "volatile". A rising Gold or Silver or oil price is "volatile". You get the picture.
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.
Gold's lack of "volatility" is best shown on the daily bar chart. No sooner had it broken back above both its (10 and 20 day) moving averages than the Gold price plummeted below both of them. No sooner had it found support just below the $US 400 level than it swooped back to test that support again - spot future Gold closed $US 0.60 below its previous 2004 low on February 20. NO sooner had Gold formed is called a "reverse" head and shoulders formation, which usually points to higher prices again, than Gold fell off the right shoulder.
On the weekly bar chart, Gold is back testing the uptrend line which is anchored back in December 2001 for the second time in the past three weeks. And for the first time in six months, Gold has closed below its shorter-term (20 week) moving average.
Two weeks ago, the point and figure chart formed a double bottom at $US 399. The subsequent rise to $US 416 has now been entirely reversed and Gold now stands one "O" below that double bottom. It has also broken below the steepest of its uptrend lines. The next line provides support at about the $US 395 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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Last Friday (February 13) Gold fell on a rumour that the European Central Bank was intervening to support the Dollar - the rumour having its basis in a $US 2 Billion trade executed by a European Bank. This Friday it wasn't a rumour, it was an announcement from Japan that they were heightening their Terrorist alert. No reason as to WHY this was done was forthcoming. As it turned out, no reason was necessary. It worked.
Returning to our strategic $US 5 x 3 chart, we have the first sign of weakness on this chart since the Gold bull began in 2001, that is the series of descending highs on the chart. As you can see on the chart, there have been no genuine pullbacks since Gold began its bull market on this chart, all there have been is a series of "distributions". The new feature on the chart, and the fact that it turned down a mere three days after having turned up, both point to the possibility of a genuine pullback in coming days and weeks.
Such a pullback would be confirmed on a Gold close of $US 390 or lower. Should that happen, the most likely support point would be $US 380 - the 200 day moving average on the weekly bar chart AND the major uptrend line on the $US 2 x 3 chart. Such a further move down for $US Gold will, should it occur, likely be accompanied by a rally in the $US and the $US index.
Right now, that is clearly what ALL financial potentates (not just those in the US) want to see happen. They may be able to bring it about - for a while - they will NOT be able to sustain it.