Last week Jan 10-14, spot future Gold recovered as high as $US 426.60 on January 12 before falling back to $US 423.00. This week, shortened by the Martin Luther King holiday on January 17, has seen Gold hardly moving at all, until Friday, January 17 when the spot future price jumped $US 4.30 to $US 426.90 on the day, slightly exceeding the high of January 12.
Last week on this page, we talked about: "...the disarray in both establishment, neoconservative, and Republican circles as Mr Bush's inauguration day looms.. Well, that has come and gone, complete with what is probably the most hypocritical inaugural addresses in the history of the republic given by Mr Bush on January 20. We don't think that it was a "coincidence" that Gold rose and the US Dollar (along with US stock markets) sagged on the following day. There is a vast difference between ignorance and stupidity. If Mr Bush's speechwriters don't realise that soon, whatever "credibility" the US Administration has left is going to vanish utterly.
The first act in the drawn out drama we analyse in the current issue (#518) of The Privateer has now been staged. Mr Bush has been inaugurated. Still to come are the presentation of the new budget to Congress, the state of the union speech, the Iraqi election of January 30, the FOMC meeting of February 1-2, and the BIG one, the G7 Financial Ministers and Central Bankers meeting of February 4-5. By the end of this saga, we will see how "elastic" the truth really is.
Any of these events has the potential to snap the truth back into focus. The combination of all of them over such a short space of time is going to make it VERY difficult to sustain the delusion that all is well.
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 now established solid support at or about the $US 420 level over the past two weeks. This week, Gold has moved back solidly above its shorter-term (10 day) moving average to stop just below the longer-term (20 day) MA. The shorter term average remains below the longer-term (20 day) average. The next indication of renewed strength will come when (if) Gold goes back above this longer term MA. And of course, confirmation of an upmove will come when the shorter-term MA rise back above its longer term counterpart.
On the weekly Gold chart, the Gold price fall stopped about halfway back to its longer-term (40 week) moving average and has now regained the shorter-term (20 week) MA. This chart is still indecisive, the first positive indicator being a spot future close above BOTH moving averages. However, on the weekly bar chart, Gold's uptrend remains perfectly intact.
The point and figure chart shows clearly how Gold's downward momentum has stopped with the second upturn from the low $US 420s this week. This chart too has strengthened somewhat, but remains indeterminate. What we do now have is important support at $US 419-20.
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 for the indeterminate future 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.
Mr Bush's inaugural address promised MUCH more of the same for his second term. The US Dollar has recovered - slightly - from its multi year lows at the end of last year, but the recovery has been very tentative so far. US stock markets are sagging, with the Nasdaq now down almost 7% for the month. We will wait and see what happens - especially AFTER the G7 meeting now only two weeks away.