Last week, we had a minor global stock market meltdown. This week, Gold has broken above the $US 430 level for the first time in a month, bouncing back above both its 20 and 40 week moving averages in the process. There was a "mini-revival" in US stock markets this week, exemplified by the astonishing 206 point rise on the Dow on April 21, but evidence of US price inflation keeps growing and the $US itself is once again slowly weakening.
Last weekend, the G-7-IMF-World Bank meetings came and went with barely a whimper. The fatuous proposal from Britain that the IMF "sell" its Gold holdings was ignored. China, which was an honoured guest at the previous G-7 meeting in February, didn't even bother to show up. And from all sides, official and unofficial voices were raised addressing the increasing irrelevance of such quasi global financial "regulators" as the IMF and the World Bank.
The strain is growing and growing. US price inflation numbers are now running at levels not seen for nearly three years. The trade deficit keeps rising as does the level of deficit spending. Even inside the US itself, reassuring noises from the Fed and the Treasury are falling on increasingly deaf ears.
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, the very tight trading range that has persisted for almost a month has now been broken out of on the upside. three weeks. Gold has broken back above both its longer-term (20 day) moving average (MA) and shorter-term (10 day) MA. And once again, the shorter-term MA has moved back above the longer-term MA - always a pre-requisite for a concerted upmove on the daily chart. The last time this happened Gold rallied to an intraday high of $US 448. Gold's bull market high remains $US 456 set back in early December last year. We'll see what happens this time.
On the weekly Gold chart, Gold has now bounced all the way from its longer-term (40 week) moving average to end the week comfortably above its shorter-term (20 week) moving average - which now stands just above the $US 430 level. The bull market on this chart remains perfectly intact with the main resistance points being in the mid $US 440s and above that, the bull market highs in the mid $Us 450s.
On the point and figure chart, the trading range as shown by the very compressed sideways action has now been broken on the upside. what was a potential double bottom at the $US 424 level last week has now become an actual double bottom, always a STRONG sign that Gold has established support upon which to build another upward thrust.
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 is 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.
As you can see, the $US 5 x 3 Gold chart has now turned down again and the pattern has filled in a BIG distribution zone between $US 410 and $US 455. Gold has not traded below the $US 400 level since September 2004. To show definite signs of weakness on this chart, it will have to go down there again.
The upmove this week shows that a penetration on the upside of this distribution zone is far more likely than the reverse taking place. The $US 5 x 3 would turn up on a close of $US 440 or higher. After that, the main resistance is, of course, the bull market high. On this chart, that's $US 455.