The immediate problem of the Treasury's quarterly "refunding" auctions were passed successfully last week with Gold taking a swan dive from the low $US 570s to just below the $US 540 level. This week, however, a potentially much greater problem arose. On February 16, the US Treasury's debt subject to limit hit the debt ceiling. After closing just below the $US 540 level on February 13 and again on February 15, the spot future Gold price recovered $US 12.10 on February 16-17 to close the week at $US 551.80.
The concern about a Gold correction which has been mounting again ever since the last one which took place in mid December last year has thus been vindicated. Gold, however, has found the beginnings of solid support with its two closes just below $US 540. That doesn't mean the "correction" is over, of course. It is, however, a first indication that it isn't going to go much lower. We'll see.
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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On the daily chart, the correction has been confirmed by the shorter-term (10 day) moving average crossing below its longer-term (20 day) counterpart just as it did last December. As you can see, the closing price on February 17 poked above the shorter-term MA for the first time in more than a week. You can also see the solid support just below $US 540 on this chart.
On the weekly chart, the similarity between the correction in mid December and the current correction is also apparent. This week, the price fell back to the 20-week MA - just as it did in December - before closing above it. It remains to be seen whether the price goes on to hit new highs as quickly as it did in December5.
The $US 2 x 3 point and figure chart is showing a classic "correction" pattern, a series of descending highs and descending lows. On this chart, we did NOT see that pattern during the December correction. This indicates that the current correction may well take longer to resolve itself.
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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The spot fuure Gold close peaked in December 2004 in the mid $US 450s and took NINE MONTHS - until mid September 2005 - to exceed those highs. The spot future Gold close peaked in December 2005 at $US 528.40. In January 2006, it smashed that 2005 high to ribbons. We do NOT expect a rerun of last year with Gold in the doldrums for the first nine months. We certainly haven't had that in January.
One last measure of the abruptness of Gold's recovery from its mid-December correction can be seen on the strategic $US 5 x 3 point and figure Gold chart. Take a look at the duration of the last two "DOWNTURNS" in the data accompanying this chart. The chart turned down on November 4, 2005 and turned up again twelve days later on November 16. It had its most recent downturn on December 16 and turned up again twelve days later on December 28. By the measure of any of the previous downturns on this chart, the most recent two have been resolved VERY QUICKLY INDEED.
Now we have a third downturn on the chart, this one from the $US 570 level. We'll see how long this one takes to turn around and what happens when it does. Right now, and upturn on the chart requires a spot future Gold close of $US 555 or higher.