Last week, Gold blitzed right through the 25 year trading range which had held it since 1981. This week, Gold has come right back to the top of it. Let us say that things are getting more "volatile" out there. It took eight trading days from November 30 to December 12 for Gold to storm from $US 494 to $US 528. It has taken only four trading days from December 13 - 16 for Gold to storm right back down to $US 503.
Government Treasurers and Central Bankers have many areas of disagreement, but there is one area where they are all but unanimous. That is in their antipathy to Gold, especially in its role as a challenger to their monetary systems and their debt-backed currencies. Gold as money acts as a strait-jacket on government. Because it does not permit the conjoring of "money" out of thin air, it permits neither the interventionist policies so beloved of all governments nor the increasing control of the populace being practiced by more and more governments.
Having a system of debt backed currencies based on a "reserve" of US Dollars may not be conducive to the long-term financial health of those participating. But what it does permit is government financing whithout the "impediments" of high taxes or high interest rates. This is something that no government is going to give up willingly. The alarm when Gold was challenging the $US 540 level at the start of the week was palpable. Something "had to be done". It was. We'll see how long it lasts.
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 this break in the Gold price came in tandem with the first substantial (1.54 point) fall in the $US index in the past two months.
On the daily chart, the Gold price has abruptly plummeted back below its 10 day moving average to close right on its 20 day moving average on December 15 - 16. This is the first time that the price has been below the 10 day average since it crossed back above its 20 day counterpart way back in mid November. On this chart, support is that 20 day moving average and, below that, the psychological $US 500 level.
Last week on the weekly chart, the Gold price had soared almost 20% above its 40 week moving average, the biggest gap yet in the bull market so far. As you can see, that gap has been narrowed this week, although the action this week has done little more than wipe out the gains of the previous week.
On the point and figure chart, a new uptrend line has was formed a month ago anchored in Gold's sub $US 460 lows set on November 4. We now have a substantial downturn on this chart, but there is as yet no sign of weakness - descending highs or lows going lower than the previous low. The first support point is, as you would expect, $US 500.
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 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, 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.
gold reached a level 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. As you can see, now we have the downturn from above the $US 500 level, at exactly the same point as occurred with $US 300 and $US 400. It will be interesting to see if Gold can take out its first $US 500 plus peak more quickly than it managed it at $US 300 and $US 400. We think it can - and it will.