In the two weeks between August 3 and August 17 , Gold rose $US 11.40. This week, it gave back a little over half of that - with spot Gold falling $US 6.80. It has long since become noticeable to technical analysts that the better the formation on the Gold chart, the greater the chance for a pullback is. This week provides one more textbook example of that phenomenon
"We are sure you will agree that ALL the charts on the left look very pretty indeed!"
The Gold Bottom last week - August 17
The charts don't look quite as pretty this week, but they have not deteriorated to any great extent. Since it is political policy (not just financial policy) in the U.S. that the Gold price be kept in check against the $US, it is not surprising that Gold has suffered a "relapse" in the week when the Fed cut U.S. rates for the seventh time this year. After all, "inflation" is not a problem, is it? With this "mantra" in mind, any evidence of "inflation" (like a higher $US Gold price) is not to be countenanced if at all possible.
So, for the past three weeks, $US Gold has played out a "two steps forward - one step back" routine.
This is fairly normal for any market, even one (like the stock market) in which the political policy is for it to go higher - preferably in perpetuity. The problem is that U.S. markets are NOT going higher, no matter how hard the Fed tries to revive them.
Polled just before the August 21 rate cut, more than half of the U.S. "primary dealers" who are always asked about their outlook for future Fed moves gave the opinion that there would be no more rate cuts this year after the August 21 cut. Wall Street has already started to bet that there will be, as witness the 180 point surge on the Dow on Friday (August 24). There are still three more FOMC meetings this year, the next one on October 2.
Technically, the final "ingredient" would be an upturn on the $US 5 x 3 Gold chart. We would get that on any spot future Gold close of $US 280.00 or higher - only $US 0.70 above where Gold closed on August 24.
The Gold Bottom last week - August 17
It hasn't happened - yet. Last Monday (August 20), the day before the FOMC meeting, open interest on the Comex spiked about 9000 contracts - almost ALL of which were commercials going short. Precautions had been taken, the Gold price has reacted accordingly through the rest of the week.
This week too, Gold lease rates have continued to fall with the one month rate now BELOW 0.40%. This is the lowest that these rates have been on our longer-term chart going back to June 1999.
The efforts to "cap" the Gold price are reaching yet another crescendo, and STILL the $US Gold charts are hanging in there nicely.
The thing to watch for now is if Gold can hold the $US 270 level AND if it can remain above its 20 and 40 week moving averages. Stay tuned.