This week has been the week in which the world was given a thunderous wake up call. All of a sudden, not much more than a month since Wall Street and most of the rest of the world was complacently predicting that the Fed was "finished" raising rates, the whole world seems to be rushing to raise rates. This week, flanked by a mini stock market crash and gyrating currencies, no less than six major Central Banks (including the ECB) raised their rates.
The prospect of more rate rises combined with gartantuan debt levels and unmistakeable signs of economic slowdown everywhere has led to a bit of a paper dumping spree. The only asset class which has not yet succumbed to this is government bonds. The problem here is that in the US, the yield curve on US Treasury debt paper has again gone negative with two-year yields three basis points ABOVE ten-year yields (charts available to Privateer subscribers only). This is the third time since last December that the two-ten year spread has inverted. It bodes very ill indeed for future levels of economic "growth" in the US economy.
So does the interest rate outlook. Two months ago, many Wall Street pundits were confidently predicting that the Fed would start LOWERING rates again before the end of the year. A month ago, the betting was leaning towards no rate rise at the June 28-29 meeting. Now, another rise at that meeting is regarded as a sure thing and real fears are emerging that the Fed might havt to go right on raising through the (northern) summer and even into the fall.
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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Despite the continuation of the correction to new lows this week, the performance of Gold in the table since early 2002 leaves the Dow and the $US for dead
Last week, we said that we still await a solid support level which must be established before Gold can have a platform from which to rise again. We still haven't got it as you can see from the chart updated to June 9. The interesting thing on the chart is that volume has dried up this week, despite further big falls in the spot future price.
On the weekly chart, Gold shows its fourth "down" week since the week ending on March 10, 2006. Last week, Gold crossed below its 10-week moving average. This week, it is most of the way back to its 20-week (100 day) moving average, which currently stands just above the $US 600 level. Clearly, this $US 600 level provides the next potential support point, if only for the fact that it is a "round" number.
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 four week (and counting) severecorrection. As you can see, this week the Gold price has dropped below the steeper uptrend line mentioned above. The next support point is the $US 600 level and below that, $US 580
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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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 a month 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. As we said here last week - the Gold price is 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. Well, with Gold now down to $US 610 on the chart, it has just penetrated below that line and re-entered the upchannel it was in before the massive acceleration of April/early May. Again, Gold "should" find support at present levels. But there is no upturn on this chart yet.