The damage done to the $US Gold price during the first week of 2005 has been repaired - slightly - this week. Gold is up $US 3.50 for the week but down $US 3.60 from the level it reached on January 12. Meanwhile, the open interest on the Comex Gold contracts have been cut by about 52000 since the $US index hit its 2004 low on December 30.
The movement of the Gold price, and that of most other US financial assets including the US Dollar itself, are symptomatic of the disarray in both establishment, neoconservative, and Republican circles as Mr Bush's inauguration day looms. The "old guard" Republicans (liek Bent Scowcroft) have washed their hands of Mr Bush's Iraq "policy" altogether. The neocons are drawing up new hit lists - including the usual suspects Iran, Syria, North Korea etc. Some are even trying to include CHINA! And in governing Republican circles, almost as many are calling for Defence Secretary Rumsfeld's head as are defending him.
The most telling comment was written by Mr Frank Gaffney in an article which appeared in the Washington Times. Bemoaning the tentative plans outlined by Mr Bush to cut spending in some military programs as part of his "drive" to reduce the budget deficit, Mr Gaffney wails that this will leave Mr Bush with military assets - "far short of what is needed to maintain US global supremacy.". And WHY does the US "need to maintain global supremacy?". Mr Bush et all would have us believe it is to protect us from terrorists. In fact, it is to protect the US Dollar in its role as the world's reserve currency.
As we have stated both here and in The Privateer, it is THAT role which is central to the power wielded by the US establishment and by the Bush Administration. And it is that role which is about to be tested as never before, and likely found wanting, as 2005 continues.
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?
On the daily chart, you can see that Gold has established a first support point just below the $US 420 level. This week, Gold moved up to its shorter-term (10 day) moving average but bounced off it to the downside late in the week. The shorter term average remains below the longer-term (20 day) average. This is a situation which must be turned around on this chart before we can be confident that Gold has found a support point and is poised to challenge its early December 2004 highs.
On the weekly Gold chart, the Gold price fall stopped about halfway 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. The shorter term MA is still, of course, still well above the longer-term MA with support from the 40 week MA standing just below the $US 412 level.
On the point and figure chart, Gold is distributing between $US 419 and $US 426. This is where Gold's near term future will be worked out. The longer the recent $US 419 lows hold, the better chance Gold has of establishing a SOLID support zone and mounting another rise. But, if Gold keeps falling next week, and especially if it falls to a level of $Us 416.00 or lower, then we can expect a challenge to the next uptrend line on the chart, presently at about the $US 411-412 level - a similar level to the 40 week moving average on the weekly bar 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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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 pointed out repeatedly, it is VITAL for the $US index to keep its head above its post 1972 lows of 80.00. A fall below this level would GREATLY increase the chances of a crash dive in the $US, and such a dive would make the continuation of Bush Administration policies all but impossible.
Since the power of the US government and the US establishement rests fundamentally on the viability of its currency, everything possible, up to and including trying to drive the $US Gold price as low as possible, will be done to support the Dollar. The problem for the US is that the fate of the US Dollar is no longer in the hands of the US, it is in the hands of international US Dollar creditors. If the rest of the world stops buying or starts selling Dollars, there is nothing that the US can do about it.