At its spot future close of $US 424.60 on October 22, Gold is now $US 3.20 or 0.75% below its April 1 2004 year high spot future close of $US 427.80. It is also a mere $US 1.50 above the $US 323.10 spot future close it reached two weeks ago on October 8. Gold was never going to have an easy time breaking through highs set way back in February and April this year. Add to that the fact that we are now in the closing stages of the US Presidential elections, and Gold's proximity to its annual highs (maintained over the past two weeks) is a pretty good performance
These are VERY trying times for the paper-mongers of the world. US Treasury Secretary Snow might as well be a ventriloquist's dummy, mouthing as he so pathetically did twice over the past week the modern fable that the US maintains a "strong Dollar policy". The only feeble straw he has left to cling to is the fact that the US Dollar has not yet breached its 2004 lows against either the Euro or the $US index. In both cases, it is getting very close, about as close as Gold is to breaking above its 2004 highs.
Meanwhile, Fed Governor Bernanke - he of the now infamous "deflation scares" of 2002-03, has come out with the statement that the run up in $US oil prices has now become: "Large enough to constitute a significant shock to the economic system." Only last week, Mr Greenspan devoted an entire speech to the message that the oil price wasn't a big concern, being not nearly as high in "real" terms as it was in 1980-81. About the only thing that the $US oil price HASN'T been a big shick to is official measures of US inflation, seeing as how the "headline" CPI numbers exclude food and ENERGY costs.
With the US elections just over a week away, almost everything is on the "brink". Gold is almost back to its 2004 highs with the $US index careening downwards towards its 2004 lows. Treasury debt is, of course, frozen until the Congress comes back into session starting on November 16. And to top everything off, the Dow fell to a new 2004 low on October 22, sliding 108 points to 9757.
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.
After dipping down towards its longer-term (20 day) moving average (MA) at the beginning of the week on the daily chart, Gold has bounced back above the $US 420 level and is now at fresh post April 1 highs. The price is back comfortably above its MAs and uncomfortably close to its bull market highs. It will be interesting to see which breaks first, the 2004 $US spot future closing Gold high or the 2004 spot future closing $US index low. Right now (October 22), Gold is 0.75% below its 2004 high with the $US index 1.00% above its 2004 low. It is becoming a close run race.
On the weekly Gold chart, we had the VERY important crossover - shorter-term (20 week) MA back above longer-term (40 week) MA last week. This week, the gap has widened with Gold ending the week at its highest spot future close since April 1. The chart patter of higher highs and higher lows which Gold has been in since May is perfectly intact. The MA crossover is a STRONG signal of higher prices to come. All that remains is the resistance still offered by the highs of earlier this year.
On the point and figure chart, Gold is now one "X" higher than the high reached during its previous upmove (the one that peaked at $US 423.10 on October 8). On this chart, THE signal that a new leg in Gold's $US bull market is underway would be any spot future close of $US 430.00 or higher - three "X"s above Gold's previous bull market highs on this chart.
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. Gold has five trading days left in October 2004 to outdo its progress at the same stage of the previous two years. Even with the political imperatives of the upcoming election, we'd say its chances of setting new 2004 highs this coming week are good, but not as good as they would be without the election.
As we said here last week, the bottom line remains simple. Will Gold stay below its 2004 highs until November 2 or won't it? We'll know soon enough. 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.