there can be few better illustrations of the fact that Gold is the "political metal" than what happened in New York trading on September 3. On that day, with shortened trading hours in the leadup to the Labor Day Weekend, Gold slumped $US 5.50 on comparatively huge volumes. There was no conceivable reason for this fall. The much awaited August US employment figures were a damp squib.
Actually, of course, there was a "conceivable" reason. September 3 marked the day after the end of the Republican Convention, the day after Mr Bush's acceptance speech, and the day before the last calm before the political storm. Once the long weekend is out of the way, it will be politics almost literally "to the knife", and the devil take the hindmost.
Gold did not actually fall very far this week, it was only down $US 2.30 ($US 403.30 to $US 401.00). The telling item was the nature of the fall - on huge volume on otherwise almost comatose markets, and the timing of the fall - just before the long weekend and just after the convention.
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, the $US 5.50 fall on September 3 has pushed Gold below both its 10 and 20 day moving averages for the first time in a month. You can also see the BIG volume needed to do this on the volume chart.
On the weekly chart, you can see that Gold has once again retreated to the bottom of the $US 400 - 410 trading range it has been tracing out over the past three weeks. The $US 400 "line in the sand" drawn by US monetary authorities is still holding, although Gold has now come back to it from levels at or just above the $US 410 level. The shorter-term (10 week) moving average (MA), with Gold now back between the two.
The point and figure chart now shows two failed attempts to break decisively above the $US 410 level. It also shows a recent series of lower highs and lower lows. With the fall on September 3, the chart is coming back towards its uptrend line. Last week, we said that the weakening of this chart signalled "the increased possibility that Gold might once again retreat to its uptrend line, presently just above the $US 390 level". This week, Gold is more than halfway there.
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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In mid July, 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. Now, Mr Bush has greatly upped the ante. In his acceptance speech, he came up with the rosiest of rosy scenarios for almost every aspect of life within the US. The fact that his "vision" was refuted by the FACTS bothered him no more than it did Mr Greenspan.
The Republican platform, which Mr Bush does NOT have to adhere to, candidates not being bound by their party's platform, 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". It certainly "sells" in Washington DC. The verdict of whether it sells elsewhere in the US now awaits the November 2 verdict. We are in for some WILD times, not least on financial markets, in the meantime.