Last week (February 7-11) saw the abrupt turnaround of $US Gold and Silver prices. This week, (February 14-18) has seen an abrupt turn UP in US Treasury yields, especially on the long end of the curve. The spread between two and ten year Treasury yields, which hit a multi-year low of 72 basis points on February 14, had blown out to 85 basis points by the end of the week.
On top of that, the $US index has fallen more than a full point this week (84.61 to 83.52), the oil price is closer to the $US 50 level than it has been for months. And base metal prices are againg soaring. On February 18, the $US copper price hit a new 16-year high. "Inflationary expectations" are again on the rise in the US.
To cap this process, so far, the US PPI for January was announced on February 18. The "headline" rate was a comparatively benign 0.3%. Not so the "core" rate, the rate excluding food and energy prices. That rate was 0.8% - the highest monthly increase in six years. In a shortened trading day, neither the US Dollar nor $US precious metals prices moved much, but Treasury prices sure did, with yields well up right across the curve.
In his Congressional testimony this week, Mr Greenspan was assailed with questions which at least nibbled around the edges of the "long-term" viability of present US borrowing and spending practices. He was asked about the abysmal US savings rate. He was asked about the consequences of any deceleration of foreign buying of US Treasuries - nobody was game to ask him about the consequences of foreign SELLING of same. He was asked about the fact that in 2001, the US federal budget was projecting a $US 5.6 TRILLION surplus over ten years while it is now projecting a $US 3.7 DEFICIT over the same period. To all of this, Mr Greenspan replied that everything was going according to plan because the Fed had successfully maintained a "stable monetary system". Nobody laughed.
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?
On the daily chart, Gold has consolidated above both its 10 and 20-day moving averages and is up about $US 16.00 from its intraday lows of eight days ago. The shorter-term moving average is once again curving up back towards its longer-term counterpart. Last week, we pointed out that resistance on this chart can be found at the top of Gold's January trading range around the $Us 426 level. Gold has now exceeded that level - just.
On the weekly Gold chart, Gold has bounced back from its brief dip below its longer-term (40 week) moving average last week. As you can see, Gold is back to the top of the trading range between $US 420-426 it began to trace out in early January. Right now, the shorter-term (20 week) moving average stands at $US 431.70. The next solid signal of a $US Gold rally would be a spot future close above this level.
On the point and figure chart, Gold has simply retraced all of the brief dip down towards the $US 410 level of early February. As stated last week, wehave the makings of a "three leg" correction on this chart, the third leg having brought Gold down to the $US 412 closes of February 8-9. 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:
|
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. Right now, Gold is $US 2.90 short of giving us that upturn. If we get further Treasury weakness (higher yields) and $US weakness in the coming week, that should be enough to push Gold back above that $US 430 level.