So, why did Gold all of a sudden explode upwards by $US 9.00 on Thursday, August 11? There are a myriad of contributing factors, but here's one that we are confident had something to do with it. It comes in the form of a Reuters headline dated August 10: "China FX Reforms Pick Up Pace - Yuan Basket Detailed"
Here is the important part of the news release:
"The central bank's governor, Zhou Xiaochuan, also made good on a promise to disclose some details of the basket of currencies to which the bank refers in managing the float of the yuan now that it is no longer joined at the hip with the dollar."
"The currencies in the basket depend on the amount of foreign trade we conduct. The U.S., euro zone, Japan and South Korea are our biggest trading partners now," Zhou said in Shanghai. "Hence, their currencies are naturally the main ones in the basket."
"James Malcolm, a currency strategist with Deutsche Bank in Singapore, deduced that the dollar had a 30 percent weighting in the basket, the yen and euro 20 percent each, and the South Korean won 10 percent.
Seeing this from China, and knowing full well that most of the rest of Asia will follow China's lead in creating similar currency "baskets", the markets had no trouble deducing that it is now just a matter of time, and not much time, before the Asian demand for US currency and Treasury debt begins to dwindle.
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 period covered by the table, the $US Gold price has gone up a lot more than the $US has gone down on a trade weighted ($US index) basis. And look at the Dow, a mere 1.66% gain to show for nearly three and a half years of trading since March 2002.
Last week, we said that the daily bar chart had "buy signal" written all over it. That remains the case this week of course, with the 10-day moving average now well above its 20-day counterpart and with the price well above both. Gold's $US 445.90 spot future close on August 12 is actually the highest one this year. It is the highest close since December 7, 2004, two trading days after Gold hit its bull market high of $US 456 on December 3.
The buy signal on the daily chart is now duplicated on the weekly Gold chart. Gold has again PERFECTLY comfirmed its uptrend line, just as it did at the end of May. The Gold price is back well above both its 20 and 40 week MA. And now, Gold has broken above the trendline (the dotted red line) connecting its three previous highs. The only resistance level left is the bull market high of $US 456.
The picture is identical on the Point and Figure chart. Gold has once again confirmed its uptrend line, broken above its recent tight trading range, and is now back well above the trendline connecting its previous highs.
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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Please note that in percentage terms, the $US Gold price rise is more than double the fall in the $US index.
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.
Ever since Gold broke back below that $US 440 level after having set a bull market high of $US in early December 2004, that has been THE resistance level.
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 then breached $US 440 on June 23, precisely the same level which confirmed the bull market on the chart way back in November last year. It could not go higher, and corrected down to $US 420.20 on July 19 - turning the $US 5 x 3 chart down again in the process.
On August 11, with that $US 9.00 Gold price rise (to $US 445.50), the $US 5 x 3 chart turned up again as Gold once again breached that $US 440 level. For the entire year so far, Gold has been in an ever narrowing distribution zone on this chart. Now it has poked outside it, and the direction is to the upside.
Resistance on the $Us 5 x 3 chart is, of course, at the bull market high of $US 455. Above that, $US 470 - or higher - is needed to confirm the next upleg on the $US Gold bull market.