Last week ,we got a $US 10.50 jump in the spot future Gold closing price on June 17-18. This week, we got three "dead flat" days and then another jump, this time of $US 8.20, on June 24. We tips our lids to Mr Richard Russell, who said that he would not be surprised to see Gold regain the $US 400 level "this week" (June 21-25). And so it has. What we said here last week is this: "Now, all we need to CONFIRM the bottom for the recent correction in the $US Gold price is a spot future close back above the $US 400 level."
As you can see on the daily chart, since Gold reached the low point of its correction ($US 374.90 on May 13), it has traced out a pattern of ascending highs and ascending lows. Not only that, but with the close back above $US 400 Gold has rebounded back above its 40-week (200-day) moving average. The combination of these factors is enough to be VERY confident that the post April correction is over.
That means that instead of looking back towards $US Gold's recent lows, we can look ahead to Gold's bull market highs.
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.
On the daily bar chart, we have had the second week in a row of gap-up action. You can see that so far, the recovery from the mid-June lows has been MUCH stronger than was the recovery from the mid-May lows on Gold. And, just to put the "icing on the cake", the shorter-term (10 day) moving average has moved back above the longer-term (20-day) one this week.
The weekly bar chart shows Gold Gold breaking out above a four-week sideways move. As we said here last week: :To break out of this sideways action, and to get back above both the 100 and 200 day moving averages. Gold needs to regain and surpass the $US 400 level.". It has now done both. Note the similarity in the movement of the two (20 and 40 week) moving averages back in April 2003 with their movement now. If Gold can consolidate from present levels and move higher, the crossover may not occur.
The point and figure chart presents a VERY pretty picture. The uptrend line has now been completely confirmed as Gold now shows a set of two higher lows and higher highs. This chart now looks to be in the final stages of completing a "reverse" head and shoulders formation. Regular "head and shoulders" formations usually lead to lower prices. The reverse usually leads to the reverse - higher 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:
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Next week, two potentially momentous events will take place. First, the FOMC meets on June 29/30 and will almost certainly RAISE official US interest rates for the first time in four years. Second, on June 30, the US is scheduled to at least go through the motions of handing back what they call "sovereignity" to their hand-picked Iraqi government.
The handing back of "sovereignity" to Iraq will, of course, be in name only. The Bush Administration has no intention of complying with any decision by this new government with which they do not agree. Be that as it may, for every day that US troops remain in Iraq after this handing back of "sovereignity", the more the pressure will grow and the clearer it will be that the US is there as an occupying power, NOT as a "liberator".
The Fed's rate rise (even if it is a whole 0.50%) will still leave official US rates in a very negative REAL condition. Even so, it will be a huge wrench for US financial markets to look ahead to the prospect of HIGHER rates streching into the unseen future.
As we have said many times here in Gold This Week, the really BIG Gold bull markets always occur in a climate of rising interest rates, especially in a climate where rates have been grotesquely distorted below their market rate for a considerable period. The present situation in the US qualifies perfectly.