A comparatively quiet week this one, with Gold sagging slightly under the $US 420 mark at the beginning of the week only to regain that level - until Friday, May 20. On that day, Mr Greenspan was talking to the Economic Club of New York. He said that "energy prices" remain central to the health of the US economy. He said that a Chinese revaluation is unlikely to "cure" the US trade imbalance. He said he doesn't believe there is a US housing bubble but that present acceleration in housing prices are unsustainable.
The bit about China and the bit about US housing were ignored, but the bit about energy prices was not. Two days earlier, the latest US CPI had come out with an unchanged "core" rate. And on the day that Mr Greenspan was mentioning energy prices, the oil price fell to a new 2005 low of $US 46.80, having fallen all week. The oil price has now fallen from $US 52.25 on May 10 to $US 46.80 on May 20.
That was good enough for currency traders. The $US index put on another spurt and rose 0.57 points (or 0.67%) to a new 2005 high of 86.67. The spot future Gold price fell $US 3.10 (or 0.74%) to a new post February 2005 low of $US 417.70.
The Dollar is rallying, what need is there for Gold? That is the attitude on the COMEX at present. It is most certainly not reflected out there in the real world where physical Gold is bought and sold, the demand continues to increase. But the "price" of Gold is not set in US or Asian coin shops or in Middle Eastern or Indian bazaars, it is set on the US futures markets. On May 20, Gold was down $US 3.10 on the COMEX, which exactly duplicated its fall for the week.
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 for the second week in a row, Gold and the US Dollar have performed a very close mirror image trick. Last week, $US Gold fell 1.45% while the US Dollar index rose 1.77%. This week the mirror was even closer with Gold falling 0.74% while the $US index rose 0.67%
On the daily chart, the gradual slide on Gold has brought it to the lowest point shown on the chart. Gold's close of $US 417.70 on May 20 was the lowest since Febuary 11. Gold's 2005 low remains 412.60 set on February 8. This correction has seen Gold fall $US 18.50 since the beginning of May and has taken Gold below the $US 422-428 trading range it was in between mid-March and mid-April.
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. The shorter-term (20 week) moving average is on the verge of crossing back below the longer-term (40 week) MA. Meanwhile, the Gold price is now VERY close to the uptrend line which has supported the bull on this chart since 2001. A retreat to February's 2005 low around the $US 412 level would take Gold right back to this line.
On the point and figure chart, you can see that Gold has penetrated (just) below its uptrend line with this fall below the $US 420 level. Here too, support is at the February lows while resistance can now be found at almost any price between $US 420 and $US 440.
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. This week, the chart added another "O" to the downside when Gold closed below $US 420 on May 16.