Out of the blue, a rebound. Led by a HUGE leap of $US 0.63 (or 9.6%!) for Silver, $US Gold climbed from $US 412.90 to $US 421.00 on February 10-11.
Various reasons have been given for this abrupt turnaround. The old chestnut of IMF Gold sales to finance African debt forgiveness was trotted out at the G-7 meeting and widely blamed for Gold's fall below $US 420. Many said that the public reluctance of the US to go along had "re-assured" Gold investors. Then there was the sudden announcement by North Korea that they did indeed have "nukes".
For whatever reason or combination of reasons, Gold has now regained the $US 420 support level it traded at for five weeks before the dip down to $US 410 (intraday lows) this week.
Last week, a bill was introduced on the floor of the US Senate which sets a deadline on Chinese revaluation of its currency. This bill was introduced in Washington the day before the first day of the G-7 meeting in London. There was no public mention of the Chinese currency peg at the G-7 meeting, nor has there been any media coverage inside US if the bill since its introduction. It is known that both the Bush Administration and Treasury Secretary Snow are against the measure. Mr Snow, speaking on February 10, spoke of "diplomatic means" being the preference for persuading the Chinese to float their currency.
So, the events shoehorned into the first week of February - FOMC meeting, State of the Union Address, G-7 meeting, 2006 US federal budget - have now all come and gone. And Gold has recovered abruptly.
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, Gold has regained both its 10 and 20-day moving average after falling as low as just above the $US 410 level intraday earlier in the week. The shorter-term moving average has once again crossed below the longer-term one, for the second time since Gold hit its 2004 highs in early December. With Gold once again above $US 420, it remains to be seen how long this lasts. On the daily chart, resistance is found at the top of Gold's January trading range around the $Us 426 level.
On the weekly Gold chart, Gold dipped below its longer-term (40 week) moving average early in the week only to regain it by week's end. Once again, the price is fluctuating between short and long-term moving averages and is back at or about the $US 420 level, the level it has traded around since early January. The Gold price remains comfortably above the uptrend line on this chart and the shorter-term average remains equally comfortably above the longer term one.
On the point and figure chart, Gold dipped almost down to the main uptrend line this week before turning up with the gains of February 10-11. We now have the makings of a "three leg" correction on this chart, the third leg having brought Gold down to the $US 412 closes of mid-week. The only other three-leg correction since the bull began in 2001 was the correction of early 2003. Technically, there should not be a "fourth" downleg 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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I know we've been saying this ever since November, but it remains true. 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.
The low on this chart (plotted on a spot future CLOSING basis) is $US 415. An upturn requires a spot future Gold close of $US 430 or higher. On this most senior of charts, Gold can retreat all the way back to $US 400 without doing any technical damage whatsoever.