This week, $US Gold had its first challenge of the $US 400 level - its intraday high on June 1 was $US 399.00 - and then slipped back to just below $US 390 before closing the week with a loss of $US 3.10. In sum, a quiet week for Gold, as it was a quiet week for most other markets. The notable exceptions were the oil market where spot future crude is once more below the $Us 40.00 level and the Treasury debt markets where short-term yields (three, six, and twelve month paper) set new post 2002 highs on Friday, June 4.
IN the two weeks between May 13 and May 27, spot future Gold gained exactly $US 20.00. In the week since then, it has lost $US 4.00.
The orgy of liquidity being poured out by the Fed shows no signs of slowing, with both M2 and M3 money supply numbers increasing at historically unprecedented speed. A build up of liquidity even approaching present levels has only in the past been put in train in RESPONSE to a financial crisis. This one seems to be in train in the ANTICIPATION of such a crisis.
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. As you can see, that has not changed despite Gold's current correction.
On the daily bar chart, the shorter-term (10 day) moving average (MA) is back comfortably above the longer-term (20 day) MA. The Gold price dipped below the shorter-term MA on June 3, only to rebound back to it on June 4. As long as the Gold price can maintain itself above the longer-term MA on this chart, we can conjecture that Gold is simply "gathering" steam for a second tilt at the $US 400 level.
The weekly bar chart now shows three weeks of rises, although the closing price this week was down from last week. Gold moved back above its longer term (200-day) MA on June 1 when it hit $US 399 in early intraday trading, but could not hold that level. With the shorter-term (100 day) MA moving towards the longer-term MA, Gold is going to have to get back above the $US 400 level pretty soon and stay there. If it does not the MAs will "cross over" for the first time since 2001.
The point and figure chart is a pretty picture. You can see that the uptrend line (based in Gold's December 2001 lows) supported the price perfectly and that we now have a solid upmove above that line. With the close of $US 388.10 on June 3, we now have the downturn. What is going to be interesting now is how much of the rebound will be retraced before the chart turns up again. The smaller the retracement, the bigger the potential upturn when it comes.
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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The US Commerce Department has reported that 244,000 "new" jobs were created in May, bringing the official average for US job growth over the past three months to 300,000 plus per month. Strangely enough, the official US unemployment level of 5.6% has not moved at all. "Economists" don't seem to mind, many are calling these figures irrefutable evidence of a "new stage in the economic expansion".
They are also saying that there is no longer any "need" for the Fed to keep rates at their present conspicuously low level. Predictions of a 0.5% rate rise (1.00% to 1.50%) when the FOMC meets at the end of this month are proliferating.
Other things are proliferating too - like the level of government indebtedness (see Gold This Week). There is also the ocean of "liquidity", without any obvious cause for it, which has been pumped out by the Fed over the last six weeks or so.
There are now a little over three weeks until the FOMC meeting. the G8 meets in Georgia beginning on June 8. At the end of the month, there is both an EU - US Summit and a NATO Summit. As we said in the current issue of The Privateer, June is the "pivotal moth".