It took five weeks for Gold to break out above its recent $US 400-410 trading range. It has taken only one more week for Gold to break above the $US 420 level. Indeed, Gold's spot future close of $US 423.10 on October 8 is the highest since Gold reached its 2004 spot future closing high (so far) of $US 427.80 on April 1.
The pressure under the $US Gold price has been increasing steadily since the rumour started to circulate that Bush Administration officials were urging a (further?) 20% "devaluation" of the US Dollar. The pressure was not eased by either the G-7 or the IMF/World Bank meetings, neither of which resolved anything of even cosmetic value, not in public anyway. The inexorably rising oil price, which topped $US 53 on October 8, hasn't hurt. Nor have recent US financial statistics, all of which portray a slowing economy, burgeoning debt, an increasing reluctance by consumers to borrow, and an increasing reluctance by foreign Central Banks to lend - to the US Treasury, that is.
The "gold markets" managed to get on top of Gold for most of this week, starting with a $US 5.50 fall to $US 414 on Monday, October 4. Gold then bounced back to a level about a Dollar below where it ended last week by October 7. Then came October 8 with the bounce straight through the $US 420 level to the post April 1, 2004 high.
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 chart, Gold is on a railroad track going straight up and has been on it ever since the brief sojourn (just) below the $US 400 level in early September. The moving averages are tracking the rise nicely, with the shorter-term (10 day) average well above the longer-term (20 day) average.
On the weekly chart, Gold broke above its five week $US 400 - 410 trading range last week. In doing so, it confirmed the pattern of higher lows and higher highs set since Gold's 2004 lows set back in May. This week, as you can see, Gold is challenging its January and April 2004 highs. The shorter-term (20 week) MA has curved back up to almost meet the longer-term (40 week) MA. It is now only $Us 0.30 below the longer-term MA. A crossover of these averages, shorter-term back above longer-term would be a definite signal towards another upleg in Gold's bull market - that is - a successful challenge to the April 1 spot future 2004 closing high of $US 427.80. It will probably be a close run thing to see which happens first, a moving average crossover or a new 2004 high on the spot future Gold price. Barring a big sell-off, one or both will happen in the coming week.
You can see the "higher lows - higher highs" pattern reflected in the point and figure chart, which has improved greatly this week. To establish a new upleg on the post 2001 $US Gold bull market on this chart, Gold needs a spot future close of $US 430 or higher.
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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As discussed in our main Gold commentary this week, 2004 is turning out to more and more resemble both 2003 and 2002 for Gold. The one remaining feature would be to Gold to bolt to new highs for the year just as it did in both of the last two years. Gold was up $US 5.10 on October 8. Another $Us 5.10 upmove at the start of trade next week would take the spot future closing price to $US 428.20, and that WOULD be a new 2004 high - albeit only just.
The most important price "target" for Gold in this upmove, however, is not the April 1 high of $US 427.80 or even a spot future close of $US 430. It is a spot future close of $US 440 or higher. For the reason why, please take a look at the long-term $US 5 x 3 point and figure chart.
See the dotted green line on the chart? This represents a potential long-term uptrend line. We say "potential" simply because Gold has not yet surpassed its previous highs set in January 2004 and again in April. On this chart. they are shown by the wide double top at the $US 425 level.
With its breaching of $US 420 on October 8, Gold is now just one "X" below that wide double top. If and when Gold reaches $US 440, it will be three "Xs" ABOVE that previous high. That will be the final PROOF that Gold is indeed in not just a bull market, but a long term bull market. Once Gold does reach $US 440 or higher, all precedent in technical analysis points towards the conclusion that its upsurge will accelerate, quite possibly explosively. We'll see it history repeats this time.