At its spot future close of $US 635.50 on May 26, Gold is down $US 85.50 or 11.9% from the $US 721 spot future closing high it set on May 11, just over three weeks ago. ALL of this damage has been done over three trading days. On May 15, the spot future price fell $US 26.30. On May 19, it fell $US 23.40. And this week, the really big one hit on May 24 when the spot future price swooned $US 36.20. Add those three numbers up and you get $US 85.90. That's almost the exact equivalent to the fall in the spot future $US Gold price over that period.
The US futures markets, which have long been the favourite tool of those who wish to "control" the Gold price, have seen open interest in Gold contracts plummet over the past three weeks. This is, of course, to be expected. As usual, the "speculators" are net long - by a ratio of more than 4 to one and the "commercials" are net short - by a ratio of about 1.5 to 1. And as it has been throughout the Gold bull, even during mid March to mid May when Gold rocketed almost $US 200 higher, the "commercials" remain net short. Suffice it to say here that you would not see a continuous net short position in a nearly five year bull run in any other market except the percious metals markets, and the Gold market in particular.
Before the current correction, the previous three corrections on the spot future $US Gold market took less than a month to be resolved. None of these previous corrections was as deep as the current one and none of them came after such a big run up in Gold as the one which took place between mid March and mid May. The current correction is now three weeks old. Given the depth of the current correction, and the fact that it has not yet found a SOLID support point, we cannot see it being resolved as quickly as its three predecessors. The global financial situation now is as bad or worse than it was on May 11 when Gold was trading at $US 721. But the international desperation to mask this situation is far more acute.
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:
|
Please note the fact that the $US index (USDX) is down 1.19 points this week and still the $US Gold price is down.
Last week, the 10-day MA crossed below its 20-day counterpart on the daily chart. Not surprising with the massive one day $US 36.20 fall on May 24. Gold has fallen further this week, despite the $US 7.90 gain on Friday, June 2. On the daily chart, we still await a solid support level, which must be established before Gold can have a platform from which to rise again. That's the first pre-requisite. The second is for the 10-day MA to cross back above its 20-day counterpart.
On the weekly chart, Gold shows its third "down" week since the week ending on March 10, 2006. This week, Gold crossed below its 20-week moving average with the intraday fall to $US 620 on June 1 and then rebounded to close the week just below the 20-week MA.
The $US 2 x 3 point established a new and much steeper uptrend line in early April anchored at the $US 540 lows. The steepening of an uptrend usually (there is no such thing as "always" in technical analysis) signals an acceleration of the uptrend. The acceleration duly occurred. Now, we have had a three week (and counting) correction. As you can see, this week the Gold price completed its journey back to the steeper uptrend line mentioned above and turned right there. This is the first indicator of support. The longer the line holds, the more solid the support indicator will be.
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:
|
By May 11, the strategic $US 5 x 3 point and figure Gold chart had risen $US 175 in a straight line with no corrections or even downturns whatsoever. There had not been a rise like that since the very late stages of Gold's final push to its January 1980 $US 850 high.
Look at the MASSIVE acceleration on this chart since it broke above the broken red line connecting the 1982 and 1987 highs. Look at the even more massive acceleration since the chart "double topped" at the top of its channel. Finally, look at the massive ($US 250 - 500) base from which this price surge has grown.
As we said here three weeks ago: "We don't know where the next downturn on this chart will take place. It may well take place from $US 720 since Gold has now reached the last but one of the resistance points on the way to its all time $US 850 high. We'll see. But whatever happens, the bull market is - to put it mildly - perfectly intact."
The downturn has come - from the $US 720 level. At its intraday low on June 1 (not shown on the strategic $US 5 x 3 point and figure Gold chart which is based on CLOSING prices) Gold had fallen exactly $US 100 in less than three weeks. As you can see on the chart, the Gold price is no almost back to the top of the channel which confined the bull market until the breakout in late March this year. This line SHOULD provide support. We'll see if it does.