Last Friday (June 10) the Gold price closed for the week at Euro 352.30, thereby setting a new all time high in Euro terms. This Friday (June 17), encouraged by a big fall in the $US index brought about by the announcement of a first quarter 2005 US current account deficit of $US 195.1 Billion, the $US Gold price regained its level at the start of 2005. Gold began 2005 at $US 438.40. It closed on June 17 at $US 438.30.
This week, Gold has risen $US 10.90 and Euro 5.90. On the Euro chart, it is in blue sky territory. On the $US chart, as you can see, the technical situation has improved considerably. What has also come into the picture this week is increasing speculation, even in the mainstream financial media, about the possibility that investors are starting to re-think the future viability of ALL paper currencies.
Such a situation has certainly not occurred for more than two decades. Over that period, the question was which paper currency did one wish to hold, not whether it was "safe" to hold any of them. The last time that the viability of paper currencies en masse was in the limelight was in the early 1970s, the period which marked the final divorce between Gold and the US Dollar in 1971 and the subsequent beginning of the floating currency era in 1973.
Gold was definitely on the investment screens in the late 1970s too, but that episode was not about the potential abandonment of ALL paper currencies, it was about the potential abandonment of the US DOLLAR. The world was subsequently lured back into Dollars, but it took most of two years of +20% market interest rates in the US to accomplish it.
From that day to this, the viability of paper currencies as a whole has not been called into question. We are seeing the very beginnings of the end of an era.
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?
Over the period between May 27 and June 10, Gold was up $US 7.60 in the face of a $US index which rose 2.32 points or 2.7%. Over the past week, Gold is up another $US 10.90 against a $US index which is now faltering, having fallen 1.16 points over the week. On the daily bar chart, the past three weeks as described above has seen ALL the tactical signals for an upside break take place. First the price broke back above both the 10 and 20 day Moving Averages (MA). Then the shorter-term MA crossed back above the longer-term MA. The Gold price has remained above both, and has recently been pulling away from them again. The daily chart here is decidedly bullish.
On the weekly Gold chart, Gold has bolted back above its 40 week (200 day) moving average (MA) after having PERFECTLY comfirmed its uptrend line. Right now, the 20 and 40 week moving averages are within $US 0.90 of each other, with the longer-term average still slightly above the shorter-term one. The Gold price is, of course, comfortably above both.
The point and figure chart shows a very interesting picture. For the second time this year (the first time being back in February), a downturn on this chart has been completely negated by the subsequent upmove. Both the February and May 2005 corrections looked like aberrations on this chart, and Gold's subsequent moves showed that they were. The only thing to wait for here is to find out where Gold meets resistance. The price is still $US 18 below its December 2004 bull market high.
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.
On June 16, the spot future Gold price bolted $US 7.10 higher to close at $US 436.20. That move turned UP the $US 5 x 3 Gold chart, precisely one month after it had turned down.
Gold's new all time high on the Euro on June 16 gives even more importance to this upturn. On the $US 5 x 3 chart, Gold is now in a HUGE distribution zone. Any move on the upside would break the symmetry of this zone, as would another downturn from present levels.
On an equivalent Gold in Euros chart, a Gold close of Euros 365 or higher would be required to confirm a new leg in the Gold bull market. Gold closed at 360.50 Euros on June 16. On the $US Gold chart. A new upleg on the bull market would require a close of $US 470 or higher - three clear "X"s above the $US 455 bull market high set last December.