the latest item to breach the VERY fragile facade which the US is trying to uphold in Iraq was the pictures of US flag draped coffins shown on the internet in recent days. Those reading this who are old enough will remember the daily "body count" on the evening newscasts during the Vietnam war will feel a old wound threatening to reopen. But - no "body counts" this time. As has been repeatedly stated by the more irreverant commentators, "Mr Bush doesn't do funerals".
Right now, the situation reminds us forcibly of the very early 1970s, when US stock markets were hanging in for week after week, while Gold was on the move up from its $US 35 official price but had not yet begun to REALLY move up, and while the Dollar was still in denial, trying to hang onto the belief that the closing of the Gold window and the rapidly increasing debts, on all levels, "didn't matter".
The US Treasurer, Mr Snow, is still saying that debts don't matter. The stock markets are still hanging in there. The US Dollar is still in denial. Gold has still moved up - a long way - from its lows of a little over two years ago but has not yet begun to REALLY move up.
The other ominous parallel between the early 1970s and now is the action on US Treasury yields. They were moving up then, they are moving up now. As we said in the Early April issue of The Privateer (Number 498 - April 4, 2004): "The repression of Gold has now reached the stage where the US government has - wittingly or unwittingly - put at risk the markets for their life blood - their debt paper.
So they have now, so they did in the early 1970s. The result back then was the great Treasury bear and Gold bull of the rest of that decade. Something similar is going to happen this time too. We are still in the waiting stage.
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:
|
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. As you can see, that has not changed despite the dive in the Gold price over the past two weeks.
On the daily bar chart, you can see that the current correction has not quite reached the low of the one which bottomed in early March. The intraday low during that correction was $US 388.20 set on March 3. The intraday low, so far, during this correction has been $US 390.00 set on April 21. Clearly, support is emerging at or about the $US 390 level, and if that is confirmed, we are faced with a "trading range" between $US 390 and $US 430.
This potential trading range is even better shown on the weekly bar chart - although on this chart we have no solid support yet on the price action. Note, however, that Gold has fallen back to just below its 40 week (200 day) moving average (MA) before moving up later in the week to close above it. This 200 day MA has supported the Gold bull ever since it got started.
On the point and figure chart, Gold has fallen back below the steepest of it uptrend lines. Three weeks ago, we stated that a close of $US 429 or higher (spot closing basis) would signal the END of the correction and the start of the next upleg on the $US Gold bull. We didn't get it. Look at the price action on this chart now. You can see that the downtrend (dotted red) line drawn through Gold's two previous peaks is providing support on this downleg. there is no solid support yet on this chart - except for the fac that Gold is now down to the bottom of its previous correction - don't forget that this point and figure chart is based on CLOSING prices.
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:
|
Gold's recent rise in terms of all major world currencies stalled on March 29. Its latest rise against the $US stalled on April 2. Its challenge of its all time high Euro position stalled on April 13 - when Gold fell $US 13.10. Gold has been to the brink and then backed off.
It certainly has "backed off" - all the way back to the 200 day moving average which has supported it throughout the $US Gold bull market. Take a look at the $US 2 x 3 Gold chart - Gold is back to the uptrend line which supports its entire move. Take a look at the $US 1 x 3 Gold chart - the base uptrend line on this chart is just below the $US 380 level.
As long as Gold stays above $US 380, the bull market is perfectly intact. If it stays above $US 390 - then the base is being laid for yet another upmove. The one item which makes us ABSOLUTELY SURE that the present correction is an aberration is the BIG jump in Treasury yeilds since the beginning of April. This has coincided almost exactly with the Gold correction.
The initial stages of rising interest rates usually "fake out" most investors and lead to a move out of "real goods" back in to paper. That lasts only until the realisation dawns that the reason that the rates are rising is an increase in the uncertainty about the paper in which the debt is denominated. What THAT happens, then rates rise even faster, and so do the precious metals. Wait, and watch.