Last week, Mr Greenspan has stood up in front of the US Congress to warn them to stop it (deficit spending, that is) or we'll all go broke. This week, on May 3 to be exact, Mr Greenspan's Federal Reserve met and announced what everyone expected them to announce. They announced yet another 0.25% rate rise, the eighth rate rise in the the past eight FOMC meetings.
In just over ten months (since June 30, 2004), official US rates as mandated by the Fed have TRIPLED - from 1.0% to 3.0%. We have not been able to find any prior instance in the history of the Fed during which its Funds rate tripled in less than a year. That's one of the things you get when you lower official rates to 1.0%.
Two weeks ago, the Bush Administration was bashing China. We now have daily rumours that the Chinese are on the "verge" of floating their currency. Last week, Mr Bush chose to go on prime time television to hold a press conference discussing US domestic ECONOMIC issues.
This week, we had the latest Fed rate rise, as expected as were all the previous ones. But this week too, right after Mr Bush finished talking up his domestic economic agenda, what had been an unending avalanche of "bad" economic news - higher price inflation, lower durable goods orders, shrinking economic growth etc. - changed into "good" economic news with the miraculous jobs report which trumpeted 274,000 new jobs being created in April - more than 100,000 more than street estimates.
Needless to say, the "new jobs" figure for previous months were also revised upwards.
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 since March 2002?
On the daily chart, the upward pattern which was firming last week has been cracked by Gold's $US 9.20 fall this week. Gold is back to the upper reaches of the $US 422 - 428 trading range it was between March 23 and April 18. This range provides support. Weakness on this chart would come if Gold broke below that trading range, and especially if it broke below the $Us 420 level.
On the weekly Gold chart, Gold spent last week above BOTH its (20 and 40 week) moving averages for the first time since it was coming off its early December 2004 bull market highs in the mid $US 450s. This week, the price has dived right back down to penetrate just below (on an intraday basis) the longer-term 40 week MA. At present, the 40-week MA stands at $US 426.10 with spot future Gold closing on May 6 at $US 426.90.
On the point and figure chart, the trading range shown by the very compressed sideways action was broken on the upside last week. Now, the chart has retreated right back to the level of that trading range. A signal for increased upside strength would come remains a close of $US 440 or higher on this chart. This is the level which would turn the strategic $US 5 x 3 point and figure chart up again.
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 big "decision wedge" shown on this chart is the decisive one for Gold. It cannot continue to move "sideways" indefinitely but must be broken either up or down. In essence, we have now been in a trading range too tight to move this chart for nearly six weeks. Keep watching this chart, it is the most important Gold chart we present on these pages.