Last week, the $US 500 level was breached for Gold. This week, Gold (at a spot future close of $US 527 on December 9) is 27% of the way to $US 600. If it was to keep up that rate of climb, we would be looking at $US 600 or thereabouts by the end of the year :-)
Looking again at the $US 300 - 500 trading range which has confined Gold for nearly all of the past 25 years (chart available for subscribers), you can see that Gold has blitzed right through it this week. That is a very big deal, potentially as big as the Dow's final conquering of the 1000 point ceiling which held it down between 1966 and 1983.
This is what we said here last week: "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."
Has $US 500 been left behind? Not quite yet. By way of comparison, look at what happened the first time Gold broke through $US 300 and then $US 400 in this bull market. You can see those points in the most long-term format on our $US 5 x 3 point and figure chart.
On this chart, when Gold broke above $US 300 it got to $US 325 before turning down. When it broke above $US 400 it got to $US 425 before turning down. Now, it has broken above $US 500 an, got to - that's right - $US 525 on the chart. There's no downturn yet, of course. But if Gold is going to correct as it did at the $US 300 and $US 400 breakthroughs, it had better not go much higher before the downturn does take place. If Gold can get to $US 540 or so with no downturn on the $US 5 x 3 chart, it may not correct until it is MUCH higher.
Many analysts are saying Gold is "overbought". Was the Dow "overbought" when it finally broke above the 1000 level, a level which had been its ceiling for 17 years? Well, $US 500 has been gold's ceiling for almost 25 years - until this 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?
The break above $US 500 may well prove to be an even bigger "sea change".
Please note that over the period covered by the table, the $US Gold price is more than triple the $US fall on a trade weighted ($US index) basis.
Like all the other Gold charts, the daily chart is simply accelerating upwards. Since the chart dipped back to its 10 day moving average on November 30 when Gold fell $US 4.50, the takeoff has occurred. The move on December 9 was "gap up", only the second one since this acceleration began in mid November.
On the weekly Gold chart, you can see the explosion over the past four weeks which has sent Gold soaring above the two month trading range between roughly $US 460 - 477. Right now, the spot future close is almost $US 80 (or nearly 20%) above its 40 week moving average. That's definitely the biggest gap yet in the bull market so far.
On the point and figure chart, a new uptrend line has was formed three weeks ago anchored in Gold's sub $US 460 lows set on November 4. We now have an upside explosion and a HUGE breakaway gap on the 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 more than three and a half times 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, which remains perfectly intact.
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 smashed on the upside.
As already stated, Gold is now five "X"s above the $US 500 level. That's the same distance it got above both the $US 300 and $US 400 level before turning down. The difference is that this time, Gold has gained those five "X"s in a week. It took a LOT longer than that at $US 300 and $US 400.