Last week, the spot future Gold price fell $US 1.00. This week, the price fell $US 4.70. The intra-day spread for the week - again on a spot future basis was high $US 270.50 - low $US 264.80. The $US Gold price is now back to the support point in the mid $US 260s which it established a month ago.
In essence, the $US Gold price has been falling ever since the Fed lowered rates on June 27. Over that period, there has been an official statement from the U.S. Treasury that they would NOT be participating in any concerted Central Bank move to "rein in" the Dollar - in favor of the Euro or any other currency. There have also been demands from "anonymous" Administration officials that the Europeans and Japanese start some serious inflating.
But the main reason for Gold's fall since June 27 has been the RISE of the U.S. Dollar. This has come in two surges. The $US index rose 1.61 points on June 27, the day of the Fed rate cut. It also rose 1.05 points on July 5, the day that the European Central Bank DIDN'T cut its rates.
We'll say that again. The Dollar rose when the U.S. CUT rates. It rose further when Europe DIDN'T cut rates - thereby preserving the positive spread between European and U.S. official rates. The "rationale" for this is that the U.S. is making an effort to rekindle "economic growth" while Europe is not.
In reality, the U.S. is trying with might and main to maintain its present (astronomical) levels of monetary inflation, but Europe is not helping in this process. The currency markets obviously still think that the U.S. will succeed, so the Dollar keeps on going higher. In the U.S., money is being pumped out without any thought of any consequences - but prices are NOT rising.
In short, inflation we have - rising prices we do NOT have.
Prices are not rising in the U.S. because the rest of the world is STILL exchanging all the real goods and services they can produce for Dollars. But production all over the world, including the U.S., is slowing fast, and the "supply" of Dollars is not. The point at which global production will no longer be able to "soak up" the Dollars being pumped out is getting closer and closer
Gold is now, once again, at a critical level. It is back to the support zone in the mid $US 260s which it established a month ago in early June. This weekend, the G-7 Finance Ministers meet in Rome. Next Wednesday (July 11), the Bank of England conducts another Gold auction - this one for 20 Tonnes. And two weeks from now (July 20 - 22), the G-8 Heads of State meet in Genoa. The potential for a break on the Dollar is huge and could come at any time.
What Gold has to do now is to consolidate at its present levels in the mid $US 260s and then begin to move up again. If it does that, then for the first time since late 1999, we have RISING support for Gold. If it does that in conjunction with a fall of any magnitude on the U.S. Dollar, then we have a potential for that rising support to translate into a bull market.
As long as the 1999 lows around $US 252 hold, the bottom is intact. As long as present support in the mid $US 260s holds, the technical picture is improving. A bull market, as it has done ever since the end of 1997, awaits consolidation ABOVE the $US 300 level.