On a spot future closing basis, $US Gold corrected from $US 456 on December 3 to $US 412.60 on February 8. At its spot future close of $US 436.10 on February 25, Gold has now recovered just over half (54%) of that correction. On a spot future closing basis, the $US index rose from 80.60 on December 30 to 85.14 on February 8. At its spot future close of 82.65 on February 25, the $US index has now given back just over half (55%) of that recovery. As you can see, Gold is still moving in tandem with the US Dollar.
How much longer the $US Gold price can remain a "reciprocal" of the $US index is going to be interesting. Last week, the "core" PPI was announced - up 0.8% for January. On February 25, the CRB index closed above the 300 level for the first time since early 1981. The kind of "inflation" (rising prices for consumer goods) that US monetary authorities have been dreading is looming up like a very black cloud.
The problem which has been latent for years is now breaking out into the open. The insatiable foreign (especially foreign Central Bank) appetite for $US assets which has been isolating Americans from the profligacy of their government and Central Bank is about to start drying up. Even the hint of such a thing, given by the South Koreans with their announcement that they were going to "diversify" their reserves, is enough to give financial markets a severe jolt. It has been a long time since the $US Gold price jumped $US 7.40 in one day as it did on February 22.
Last week, Mr Greenspan testified to Congress. He was asked (amongst many other things) about the consequences of a deceleration of foreign buying of US Treasury debt paper. Mr Greenspan maintained that the consequences would be both mild and manageable. This week, the South Koreans stated that they were about to start "decelerating" their buying of $US assets. The consequences were not mild, but they have proved manageable - so far. US stock markets have recovered their February 22 losses and Treasury yields at the long end are once again flat or falling.
But while Silver did give up the gains it made early this week, Gold did not. Neither did oil or the CRB index. With the US Dollar again under increasing downward pressure, Gold is again under increasing upward pressure.
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 reinforced its consolidation above both its 10 and 20-day moving averages. Much more important, the shorter-day MA has bolted back above the longer-term MA this week - hardly surprising given the fact that Gold has now risen $US 23.50 in a mere twelve trading days. For all but a few days in February, Gold had spent 2005 in a tight trading range between $US 420-426. That range has now been decisively breached - on the upside.
On the weekly Gold chart, Gold has bounced from being below its longer-term (40 week) moving average last week to being back above its shorter-term (20 week) moving average in two weeks. The weekly chart now gives solid indication that the Gold correction of December 2004-early February 2005 is now over. With the spot future price now back above both moving averages, and with the shorter-term MA comfortably holding above the longer-term MA, this chart is once more entirely bullish.
On the point and figure chart, you can see the abrupt turnaround that Gold has undergone over the past twelve trading days. With the closing price now closer to $US 440 than $US 430, the last resistance below Gold's $US 456 high of early December is the spike up to $US 445 which took place in late December (as the $US index was threatening the 80.00 level for the second time in the month). Gold now has solid support on any downturn around the $US 425-427 level.
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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As we have been saying since last November, 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 a POWERFUL support for the bull.
The BIG news this week is that the $US 7.40 rise of Gold to $US 434.50 on February 22 has turned the strategic chart UP again. The uptrend and the bull market is perfectly intact. All that now remains to be seen is how long it takes and how difficult it proves for Gold to exceed its bull market high ($US 455 on this chart) set back in December.