For three weeks, from July 26 to August 13, there was a weekly US financial statistic which severely undermined the Fed's contention that US economic "growth" is now entrenched and in no danger from any foreseeable economic or financial setback. Then last week (August 16-20), no such unwelcome statistic raised its ugly head. Gold, which had been rising quietly throughout the month, zoomed ahead last week, halving the distance to its April 2004 highs in $US terms.
This week, there has again been no piece of financial "news" wildly out of variance with market "expectations". The announced US second quarter GDP growth of 2.8% released on August 27 was not exactly stellar, but the "analysts" had learned from the earlier debacles and had toned down their announced expectations accordingly. On top of that, the $US index gained some ground and the oil price slumped quite spectacularly, giving up more than $US 5.00 this week for no discernible reason - apart from "profit taking", of course.
With all this, Gold has come off the four month high in $US terms set a week ago and slowed down significantly in terms of other major world currencies. You can see the results on the charts on this page, especially the $US 1 x 3 point and figure chart.
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, which goes back to the end of May, you can see "damage" done on the Tuesday and then again on the Friday - Gold was down $US 4.00 plus on both days. With the Friday drop, Gold has once again fallen below its shorter-term (10 day) moving average (MA) on this chart. The longer-term (20 day) MA now provides a support level just above $US 400.
On the weekly chart, the price has come right back to its longer-term (40 week) MA after jumping above it last week. This week, for the first time for the past four weeks, there was no significant jump on the Friday. Instead, Gold was down $US 4.10 on Friday, August 27. Last week, the $US 400 "line in the sand" drawn by the US monetary "authorities" was pretty decisively penetrated. This week, the question is once more in the balance.
The point and figure chart has weakened, although an unbroken series of higher lows and higher highs ever since Gold hit its 2004 lows back in mid May remains intact. The weakness comes with the downturn caused by Gold's $US 4.10 fall on August 27 which shows sellers coming in at a lower level. Technically, this signals a longer wait before Gold is in a position to challenge its April 2004 highs. It also signals the increased possibility that Gold might once again retreat to its uptrend line, presently just above the $US 390 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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Just over a month ago, Mr Greenspan came up with the rosiest of rosy scenario regarding the future of the US economy. Since then, every financial statistic has refuted him. This week, Mr Greenspan has gotten together with his Central Bank colleagues in a "summit meeting" of sorts in Jackson Hole, Wyoming. On the surface, the discussion is about the need to put something of "value" into corporate and government pension funds which are stuffed full of government IOUs. Behind the scenes, Mr Greenspan is undoubtedly reminding his colleagues about US political imperatives, not least of which is the "desirability" of global financial "equilibrium", or at least a semblance of same, while the President is getting anointed for re-election in New York next week.
The Republican platform (such as it is) revolves around the "fine" job which the Bush Administration has been doing in managing the US economy and, or course, the "safety" they have brought to the world due to their fight against "terrorism". Remember, way back in the immediate aftermath of 9/11, Mr Bush informed the world that they were either with the US or with the "terrorists". It would not surprise us if Mr Greenspan is doing the same thing in Jackson's Hole - this time in a financial context, of course.