Last week, the trashing of Lebanese infrastructure was going full blast while in the US, the "funds" were concentrating on the Gold futures markets, knocking the Gold "price" down by almost $US 50.00 on the week. This week, the trashing of Lebanon goes on as the US refuses to advocate any type of cease fire and the US/Israeli position is globally condemned.
After an intraday low of $US 602 on US futures markets on Monday, July 24 ($US 66 below where the price closed on July 14) Gold has mounted a comeback to close the week at $US 634.80. The impetus, ironically enough, has come from a growing "conviction" based on a fervent hope that the Fed may have finished with their two year plus regime of raising US interest rates.
The assiduously fostered "modern" attitude towards Gold and interest rates is that flat or declining rates are "good" for Gold because they minimise the difference between Gold (which pays no interest) and paper based financial assets (which do). In reality, in a global paper-based monetary system, higher rates are always the concrete evidence of a greater risk entailed in holding the currency whose assets are affected. When a currency is perceived to be increasingly risky, there is an increasing tendency to shun that currency for other currencies, or Gold.
This is said not to affect the US Dollar, because it is the world's reserve currency. But the US Dollar was the world's reserve currency in the 1970s too, and as the entire decade proved, Gold actually goes UP with higher interest rates and the faster interest rates climb, the faster Gold goes up. That is an economic truism waiting to be rediscovered. Watch what happens to Gold when it is.
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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The relative percentage gains since March 2002 continue to say it all.
On the daily chart, the 10-day moving average has fallen back just below its 20-day counterpart this week with the Gold price recovering to be back above both. Depending on Gold's movements over the next week or two, this renewed crossover could be short-lived. We'll wait and see.
On the weekly chart, the 10-week and 20-week moving averages continue to converge (they are now less than $US 1.00 apart) while the Gold price has closed above both for the second time in the past three weeks. As you can see, weekly volume is way up this week but open interest is down on the week. Profit taking on the shorts who piled in last week, perhaps?
The point and figure chart shows Gold failing to regain its steepest uptrend line on the $US 2 x 3 point and figure chart, the line which shows the steepening of the bull market which began late last year. This chart could go either way, the first signal being given by a spot future Gold close either above the $US 640 level or below the $US 620 level.
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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As always, we refer you to the strategic $US 5 x 3 point and figure Gold chart for an overview on the situation.
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."
That was now nearly three months and a major correction ago. This week, Gold turned UP again on the $US 5 x 3 chart when it closed above the $US 630 level on July 27.