So far, we have had four comparatively large one-day $US Gold price falls in the correction which has brough Gold from its 2004 high of $US 456.00 on December 3, 2004 to its present (January 7, 2005) level of $US 419.50. All four of these falls took place on the COMEX (US) paper markets and in all four cases, most of the fall took place after trading on all other world markets was closed for the day.
The "blame" for first fall, $US 14.80 on December 8 was put on the plummeting $US oil price. The "blame" for the second fall, $US 7.30 on 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 last two Gold price falls took place on January 3, when Gold fell $US 8.70 and on January 6 when it fell $US 5.70. In both cases, the "blame" was sheeted home to the sudden recovery of the US Dollar itself. In the first week of January, the $US index is back to its highs of nearly two months ago and $US Gold is back to its lows of nearly three months ago. Clearly, the consequences of the $US falling below the multi decade lows it set at the end of December have been deemed too great. And so they have been staved off, so far.
As it has been ever since the early 1970s, a "rescue act" on the Dollar has gone hand in hand with a correction in $US Gold. The one is never "believable" without the other.
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:
|
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?
Last week, it remained to be resolved whether Gold could establish a "double bottom" in the low/mid $US 430s or whether it will fall further as we enter the new year. that has now, of course been decisively resolved with Gold falling below the $US 420 level on January 7. Gold is now well below both moving averages on this chart and the shorter-term (10 day) average has crossed back below the longer-term (20 day) average. Right now, Gold is back to the lowest levels shown on the daily chart.
On the weekly Gold chart, Gold has now come most of the way back to its longer-term (40 week) moving average. As we pointed out when Gold hit $US 456 in early December, the Gold price was further above both (20 and 40 week) moving averages than at any previous time shown on the chart. Now, Gold has come all the way back to about half way between the two MAs. The shorter term is still, of course, still well above the longer-term MA with support from the 40 week MA standing just above the $US 411 level.
On the point and figure chart, the major reversal has now broken well below the new uptrend line established when Gold broke above its highs set earlier this year in mid November. As you can see, the next uptrend line stands just below the $Us 410 level, slightly below Gold's present 40 week moving average.
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:
|
The chart to watch continues to be the $US 5 x 3 point and figure chart. The uptrend line established on this chart when Gold broke above the $US 440 level in November 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.
As we have said ever since the new uptrend was established, Gold could retreat all the way back to the $US 400 level without breaching the uptrend. While we still do NOT think this will happen, the money managers out there are demonstrably desperate and desperate men do desperate things. The point is that even if it DOES happen, Gold's bull market will remain perfectly intact.
The $US has bounced back above its "fiat era" lows in the first week of 2005. The US government will certainly continue to 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. A week may be a long time in politics, but it's not a long time in investment markets. 2005 is just getting started, and there is no sign of ANY policies to curb the borrowing and spending policies of the US government.