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"
And why, less than a week later, the Gold all of a sudden take a $US 6.20 dive on August 17, the day after it had reached a new high on this upmove? Look no further than the official US PPI number for July released on that day. The "headline number" was 1.0%, the "core rate" was 0.4%. Both were FAR above expectations. The headline number presaged an annual rate of US Producer Price Inflation of no less than TWELVE PERCENT.
Them's late 1970s numbers, and we all know what happened to the US economy, the US Dollar, US interest rates, and the US Gold price in the late 1970s, don't we? Wouldn't do to have even a pale shadow of a repeat of THAT, would it?
For those who don't know what happened, over the course of the 1970s, the US economy had completed a decade of stagnation, the US Dollar had dived to the point where it was teetering on the brink of oblivion, US interest rates had inexorably risen to levels of 20% plus, and Gold had exploded from $US 35 to $US 850.
Those were the "inflationary 1970s", the decade during which US government debt rose from $Us 400 Billion to $US 1 TRILLION. In the 25 years since 1980, US government debt has exploded from $US 1 TRILLION to almost $US 8 TRILLION, with nary an "inflationary" signal in sight - UNTIL NOW!
Now, for the first time since the 1970s, it is not the prices of financial "assets" which are rising, it is the prices of consumer and producer goods. The only things which is keeping at bay a direct comparison between today and the 1970s are the massaged government "inflation measures" (PPI and CPI) - and the $US Gold price. Never mind that the $US Gold price is up by 57% since its 2001 lows, it is NOT up this year - not yet anyway.
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.
On the daily chart, Gold hit a new 2005 high of $US 446.10 at its spot future close on August 16. Then came the PPI number on August 17 and Gold slumped $US 6.20. As you can see on the chart, the price has fallen further since, breaking back down below the 10-day Moving Average (MA) to a point equidistant between it and its 20-day counterpart.
On the weekly Gold chart, the $US 8.70 fall this week has brought Gold back down to the trendline (the dotted red line) connecting its three previous highs. This is the line which it penetrated last week and the LAST resistance between the present price and the bull market high of $US 456 set last December.
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. It is now correcting back towards the trendline connecting its previous highs which it broke through last week.
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 a $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.