As you know (you DO know, don't you?), the $US 500 level has been breached for Gold. This is the first time that Gold has been above that level since February 1983. In fact, according to our records, the highest Gold price since the end of January 1981 is $US 519.
Last week, we referred to this chart as a definitive indicator of the $US 300-500 trading range which Gold has been in for the past quarter-century. Well, we're now right back to the top of it.
Now comes the test. Ultimately, the test is not to see IF Gold can break free of this trading range. Inevitably it can and it will. The test is to see how long it takes Gold to break decisively above the top of the range. It is also to see if there is to be a correction before $US 500 is left behind and if there IS a correction, how big it will be and how long it will last.
Clearly, many Gold stock holders are expecting the correction. The XAU in the US is now lower than it was on November 21 - when Gold was still below the $US 490 level.
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 is nearly triple the $US fall on a trade weighted ($US index) basis.
Like all the other Gold charts, the daily chart is simply going up and Up and UP. There was a slight break on November 30 when Gold fell $US 4.50, but this just served to bring the chart back to its shorter-term (10 day) moving average.
On the weekly Gold chart, you can see the explosion over the past three weeks which has sent Gold soaring above the two month trading range between roughly $US 460 - 477. The only cautionary tale here is that the present price is a LONG way above its 20 and 40 week moving averages, and only just above the $US 500 level.
On the point and figure chart, a new uptrend line has was formed two weeks ago anchored in Gold's sub $US 460 lows set on November 4. Now, the slight pullback on November 30 (see the daily chart above) has produced a LARGE breakaway gap on this chart.
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 rise in the $US Gold price is well over TRIPLE the fall in the $US index.
As we have been saying since last November, a year ago now, the chart to watch continues to be the $US 5 x 3 point and figure chart. The uptrend line was FIRST established on this chart when Gold broke above the $US 440 level in November 2004. In doing so, the Gold price rose to three clear "X"s above its previous (February - April 2004) highs. That established the uptrend line
Strategically, there has not been any reason to "worry" about $US Gold since that uptrend line was established just over a year ago. The reason is simple, it has not been penetrated since.
Now, take a look at the line (the dotted red line) joining the 1983 and 1987 highs. As you can see, this line has now been penetrated on the upside. If there is to be a Gold correction at or about the $US 500 level, the obvious support point is this line, presently at or about the $US 475 level. On the upside, should Gold exceed $US 525, then the entire 1981-2005 trading range has been decisively broken through.
In sum, we are now right in the middle of a $US 50 "decision zone". We will happily wait and see what happens. Gold has a solid uptrend line under it on the $US 5 x 3 point and figure chart and has had it ever since November 2004. As long as this line is not penetrated, the uptrend is intact. It's as simple as that.