The big item this week has not been the fall of the $US Gold price, it has been the rise of the US Dollar. Over the week, the Gold is down $US 6.20. It is UP 277 Yen and $Aus 2.90. And in Euro terms it hasn't moved, being down Euros 0.10 on the week..
We have covered the reasons for the sudden US Dollar rise in some detail in Gold This Week. This week, about the only "prices" which have been rising are the exchange value of the US Dollar and the price of Treasury debt. For public consumption, the "fuel" for both of these has been the sudden outpouring of better than expected US economic data over the past two weeks.
The latest tranche of this surprisingly "good" economic news was the 1.4% increase in April retail sales, double the expected figure, released on May 12. May 12 also just happened to be the last day of the US Treasury's three day quarterly refunding auctions, which also went through without a hitch as the rosy scenario brought into being by recent US economic data cast its spell.
But behind all this, and as yet off the radar screens of most individual investors, is the sudden and immense surge in the concern over the credit-worthiness of the debt paper which supports the financial system.
The result has been a sudden rush into the perceived "safety" of US Dollars and in particular, Treasury debt.
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?
Please note that over the week, Gold and the US Dollar performed a very close mirror image trick. $US Gold fell 1.45% while the US Dollar index rose 1.77%.
On the daily chart, the upward pattern which was firming two weeks ago week has been firmly cracked. Gold's $US 9.20 fall last week and another $US 6.20 this week. This week's fal has taken Gold slightly below the $US 422 - 428 trading range it was in between March 23 and April 18. As we said here last week, 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, the main concern for traders is the fact that Gold has now broken back below its 40 week (200 day) moving average (MA), just as it did in its last correction in mid February. As you can see on the chart, the gap between the 20 and 40 week MAs is narrowing fast. The longer Gold stays below $US 430, the more certain another crossover of these MAs, like the one in 2004, becomes.
On the point and figure chart, the trading range shown by the very compressed sideways action was broken on the upside three weeks ago. Gold has now retreated back to and now below that trading range. The price is now hovering just above the uptrend line on this chart which has supported the bull ever since 2001 - for the second time this year.
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.
With Gold now firmly mired in yet another "correction", the fundamental uptrend line as shown on the $US 5 x 3 chart must be stressed. On this chart, it was Gold's rise into the mid $Us 450s in December 2004 which confirmed finally and beyond doubt Gold's $US bull market by making it possible to draw an uptrend line on this chart. As long as that uptrend line remains intact, so does the $US Gold bull market.