On December 8, spot future Gold fell $US 14.80 and was knocked off its perch above $US 450. The highest it has been since is the $US 445.20 close of December 27, the first trading day after the Christmas break. Then, as the $US fell even further, Gold was knocked down another $US 7.30 on December 29 to $US 437.00. Gold closed for the year - on December 30 - at $US 438.40.
The "blame" for the Gold fall on December 8 was put on the plummeting $US oil price. the "blame" for the fall of December 29 was even lamer, it was put on the fact that Gold had not rallied in the aftermath of the terrible tragedy which was the Asian earthquake and resulting tsunami. The REAL reason - for both Gold falls - was increasing unease about the US Dollar index getting uncomfortably close to falling to new post 1971/73 lows.
Thus, in sharp contrast to what happened in both 2002 and 2003, Gold has ended 2004 by rising LESS than the $US (as measured by the $US index) has fallen. Over the year, Gold is up 5.36% in $US terms - its fourth consecutive year of gains.
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. Which of the three would you have preferred to own in the nearly three years since March 2002?
As we pointed out in our last report (on December 17), the present Gold bull market has now lasted longer (taking the 1971-74 and 1976-80 bulls as being separate) of any $US Gold bull market post 1971. The similarities between events surrounding the 1970s bull markets and today's bull market are many. Then as now, US debt was exploding. Then as now, the $US was falling. Then as now, the rest of the world was increasingly reluctant to buy the US Dollars and $US denominated assets they were being asked to buy by the US. The major difference between then and now is the level of US interest rates. Both official and "market" rates now are a small fraction of what they were in the 1970s, especially at the end of the 1970s when the Fed Funds rate exceeded 20% - compare that with its present level of 2.25%.
On the daily chart, the almost $US 15 drop on December 8 stands out like the proverbial sore thumb - as does the $US 7.30 drop of December 29. As you can see on the chart, the question to be resolved now is whether Gold can establish a "double bottom" in the low/mid $US 430s or whether it will fall further as we enter the new year. With Gold now back below both (10 and 20 day) moving averages, and with the shorter-term average having stalled at the threshold of crossing back above the longer-term average, this should be resolved in the near future.
On the weekly Gold chart, Gold is now hovering about half way back to its shorter-term (20 week) moving average. As we pointed out when Gold hit $US 456 in early December, the Gold price was further above its shorter-term (20 week) moving average than at any previous time shown on the chart. The correction of four weeks has halved the distance to the 20 week MA, which is now well above the $US 420 level. The upward "railroad track" on this chart is still perfectly intact.
On the point and figure chart, we had a major reversal on the chart which brought Gold right back down to the new uptrend line established when Gold broke above its highs set earlier this year in mid November. The $US 7.30 fall of December 29 has pushed Gold back below this line. However, the situation remains intact as long as the spot future close does not drop below the December 10 low of $US 433.90. That is the support point, below which is another solid support point, the earlier 2004 high at or about the $US 430 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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The $US 440 level has been decisively breached (on the upside) on the $US 5 x 3 point and figure chart. That is the final and conclusive technical evidence that $US Gold is now in the second leg of its bull market. The trendline on the chart (see the link) is now a POWERFUL support for the bull.
This is the chart to watch to keep perspective on Gold, examine that chart well. Gold could retreat all the way back to the $US 400 level without breaching the uptrend. While we do NOT thing this will happen, the money managers out there are getting desperate and desperate men do desperate things. The point is that even if it DOES happen, Gold's bull market will remain perfectly intact.
Gold has actually "underperformed" the US Dollar this year, in that its rise was less than the Dollar's fall over the year. The problem, for the US Dollar - not Gold, is that the $US index is now VERY close to its fiat era lows. The US government will certainly make an effort to see that those lows are not breached, but the US government cannot do it without either cutting its spending and borrowing back drastically and/or getting the rest of the world to keep "helping" by buying Dollars. We don't think the rest of the world will keep buying much longer, UNLESS the US government acts. Welcome to 2005, the year it will all be resolved.