Over the five weeks between June 11 and July 16, $US Gold rose from $US 385.90 to as high as $US 408.20. Over three of those five weeks, Gold was rising not only in terms of US Dollars, but in terms of ALL major currencies. Then came this week, July 19 - 23, and Mr Greenspan's two day Congressional testimony. Gold duly gave most of the rises of the previous five weeks back. This week (July 19-23), $US Gold is down $US 16.30 or 4.0% to $US 390.50, its lowest level since June 17. Here is what happened in terms of other major currencies:
Yes, you're right, the US Dollar had a good week.
At the end of last week, the $US index was hitting new post February lows. On Friday, July 16 alone, it dived 0.90 to 87.30. What's different this week? Absolutely nothing in the real world. However, in the US Congress, Mr Greenspan has spoken!
According to what we have read on the daily Gold "commentaries" from the floor of the Comex, Mr Greenspan's testimony has all but guaranteed that the Fed will be raising rates maybe a bit more robustly than was previously though. This, it is said, will strengthen the Dollar. And of course, when the Dollar strengthens, Gold weakens, its axiomatic.
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 charts this week, the big change is that Gold has gone from being above all the moving averages on the daily and weekly bar charts to being below them.
On the big chart, you can see the daily slide topped off by the "gap down" day on Friday, July 23 when Gold got to an intraday low of $US 387.40 before closing at $US 390.50. As you can also see on the chart, volume spiked this week (open interest declined too) with the biggest volume day coming on Friday. We'll see if this is the culmination of the downmove next week.
The most important feature on the weekly chart is the fact that the 20 and 40 week moving averages have now converged. The other important feature is that after having closed above both averages for the past two weeks, Gold is now firmly back below them again with the sell off this week. The more important the "health" of the $US becomes to the Fed, the more Gold struggles in $US terms.
The point and figure chart has keeled over from its distribution zone in the mid $US 400s and has slid all the way back down to the uptrend line. As you can see, the last two times that the line was challenged, it held. We'll see what happens this time.
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 technical "tightness" of the $US Gold price at present is best illustrated on the weekly chart where the 100 and 200 day moving averages have converged right at the $US 400 level. Right now, the longer-term (40 week) moving average is about $US 1.00 above the shorter-term (20 week) average. If Gold can keep moving up (in however "zigzag" a fashion) in $US terms, the situation will inevitably reverse and the shorter-term average head back above the longer-term one. It is the resolution of this formation we are now awaiting.
(The Gold Bull Market This Week - July 16)
The situation has now been resolved with Gold firmly back below the 100 and 200 day moving averages. On the point and figure chart above, Gold is at uptrend support. On the longer-term weekly bar chart, support is at about the $US 378 level - slightly above Gold's mid May 2004 lows.
The Gold action this week should make it crystal clear how IMPERATIVE the US financial authorities deem it to maintain the exchange rate of the Dollar. It has finally dawned on them (although Mr Greenspan isn't letting on) that they are at the mercy of foreign investors to keep financing their debt binge.