Last week saw the first "up week" for Comex Gold since the week ending on May 12, which was the week when the Fed's FOMC last met - on May 10. This week, the Fed met again, on June 29, and did what they have been doing with mind-numbing regularity for the past two years, they raised their controlling interest rate by yet another 0.25%.
This week too saw a much bigger "up week" for Gold than was the case last week, culminating in the biggest one-day gain since the bull market began in early 2001. On June 30, on the eve of a four day break for US futures markets (which will not trade on either July 3 or 4 next week), the spot future Gold price soared $US 27.10 to reach $US 616.00.
Even more serious, for the Fed, was the reaction to their hints that future US rate rises will not be "automatic" but will happen only as and when warranted by economic circumstances. There was the predictable "relief rally" on Wall Street, but that lasted only one day. Much more serious was the instant reaction of the US Dollar. The Dollar fell on the news, and kept right on falling the next day. On June 29-30, the $US index (USDX) fell 1.6%.
More serious still for the Fed is what is going on OUTSIDE the US. On Monday, June 26, the "Central Bankers' Central Bank" the BIS (Bank for International Settlements) warned in its annual report that Central Bankers will have to move faster to raise interest rates because global inflationary pressures are rising and the economy remains vulnerable." The Fed may stop raising rates, but the rest of the world won't. The risk to the US Dollar grows by the day.
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:
|
For two weeks, the percentage gain in Gold on this table dipped below the 100% level. As you can see, that level has been regained this week. Meanwhile, the $US index (USDX) has fallen to its lowest level since June 6.
On the daily chart, the Gold price has snapped back above both its 10 and 20-day moving averages this week with the shorter-term average now beginning to curve up towards its longer-term counterpart. The thing to watch for now, of couse, is for the 10-day average to cross back above its 20-day counterpart. A continuation of the upward pace set this week could see that happen very quickly.
On the weekly chart, Gold has crossed back above its 20-week (100 day) moving average (MA), which currently stands just below the $US 606 level. Having moved back above the $US 600 level, the next step is to see if Gold can stay there, and go on to move higher. As long as the 20-week MA remains above its 40-week counterpart, the upward acceleration of the Gold price which began back in late 2005 is still intact.
The $US 2 x 3 point and figure chart now has a clearly established base and a sizeable upside break from that. The green trendline on this chart represents the steepening of the bull market which began late last year. It is quite a long way above the current Gold price at about the $US 670 level. In spot future closing terms Gold's recent correction took the price from $US 721 to $US 562. At its present price of $US 616, Gold has thus far recouped just over one-third (34%) of the correction.
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 on May 12: "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. Now, the Gold price has re-entered the channel which confined the bull market until the breakout in late March this year. The chart went up $175 in a straight line and then went down $155. Now that's "volatility"! Now we have an upturn on the chart - right around the double top from which the March-May surge broke out.
As we said here last week - "The first resistance point on this chart is the top of the upchannel around the $US 615 level. The $US 27 surge on Friday brought Gold to $US 616, right at that level. Further moves putting Gold back above the top of this upchannel would be very encouraging. A downturn here would be a signal that the recovery is going to take a while longer to be resolved.