For five weeks, Gold languished in a narrow trading range between $US 400-410. Last week, Gold broke above the $US 420 level. This week began with light trading on Columbus Day and then the reaction kicked in with the spot future Gold price losing $US 9.90 between Oct. 11 and Oct 13. Over the rest of the week, Gold made up a bit more than half the loss, closing the week at $US 418.70. That's $US 4.30 below the Oct. 8 spot future close and $US 5.50 above the Oct. 13 low for the week.
Gold's reaction in the first half of the week was partially a reaction to its leap of the previous week and partially a reaction to a swan dive on the $US prices of base metals. This swan dive was NOT reflected in the $US oil price, which closed the week up another $US 1.62 to a new all time high of $US 54.93. The US Dollar too, had a down week, with the $US Index losing 0.33 (after being up earlier in the week) to 87.22. This is the lowest spot future close on the $US index since way back on February 24, when it closed at 86.23.
Right now, we have a situation in which the pressure under the $US Gold price is pushing one way while the political imperatives of the now looming US Presidential elections is pushing the other way. As of October 14, the US Treasury's debt "subject to limit" has been frozen $US 25 million below the debt limit of $US 7.384 TRILLION, while Treasurer Snow not so subtly denudes US government employees' pension funds to keep the government "solvent". The latest US trade deficit came in way above expectations. The Dow has slipped back below the 10000 level.
In short, everything is on a knife edge. We have markets teetering everywhere in the US, but none have fallen off the cliff - yet. The stock market indices are still above 2004 lows as is the $US index. Gold has not yet mounted a sustained challenge to its 2004 highs. Mr Greenspan can still inspire a half-terrified "confidence" on Wall Street. Can they keep this up for another three weeks? We'll see.
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, you can see the "gap down" trading on Gold on October 12 and the further falls on October 13 which pushed the price back below the longer-term (20 day) moving average in intraday trading. Then, as previously stated, Gold rebounded to more than halve its loss for the week and close on October 15 back above both moving averages. If the $US index continues to fall, it will be a very good trick to keep Gold from at least mounting a challenge to its previous 2004 highs ($Us 426-28 on a spot future closing levels) before the election, let alone after the election.
On the weekly chart, Gold has been in a pattern of higher lows and higher highs ever since it hit its 2004 lows in the mid $US 370s back in May. This week, despite the down week on the Gold price, we have a VERY important change on the weekly chart.
This is what we said here last week: 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." We did get a sell off, but not a big one, so we now have the crossover. This is a strong technical signal that a challenge to Gold's 2004 highs may not be much longer delayed.
On the point and figure chart, the most recent downturn stopped at the same point as the previous one. Here is a support point at or about the $US 414 level. On this chart too, the series of higher highs and higher lows is unbroken with the only remaining resistance at the previous 2004 highs around the $US 426-28 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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In neither 2003 or 2002 did Gold manage to take out highs reached earlier in the year in October. In both years, new highs were set in November/December. That might well happen again this year, or Gold may get out of political control and surge to new 2004 highs before the November 2 election.
The only thing we can be certain of is that if Gold DOES surge to new 2004 highs before the election, it WILL have slipped out of political control. Neither the incumbent nor the challenger wants to contend with a runaway Gold price and the very likely corollary of a slumping US Dollar. More to the point, the US political establishment which has selected both candidates for the "voting pleasure" of the American public does not want to see it happen.
The bottom line is simple. Will Gold stay below its 2004 highs until November 2 or won't it? The point is, even if it does stay below the highs until the election, the chances of it staying below them after the election are somewhere between VERY slim and none. And if Gold repeats what happened in 2003 and 2002, it will most definitely surge upwards once it leaves the $US 430 level behind it.