Last week, Gold was down to just above $US 610 early in the week before rebounding. This week, Gold bounded all the way up to $US 640 on the day after the Labor Day holiday. That's as high as it got. The oil price continued to fall, the US Dollar rebounded, and Gold fell back to end the week once again just above $US 610 - closing the week at $UA 611.40.
The evidence of economic slowdown continues to mount in the US, and that has led to two immediate conclusions. The first is that the Fed will continue in their "pause" regarding interest rates. The second is that the present bull market in raw resources, including the precious metals, is in jeopardy.
What is summarily ignored in regard to the precious metals is their potential role as money or at least as a means of protection against the paper which is used as money. As it did in the 1970s, a recession imposed on an economy which uses a debt based currency as its means of payment will inevitably put pressure on that currency. As the pressure mounts, the desire will grow to protect oneself from the potential for an increasing loss of purchasing power of the currency. This is the historical norm for all paper debt based currencies.
The old adage that in a recession "cash is king", is as prevalent as ever. But few stop to ask the question - "which cash?". It is a truism that the heavily indebted, whether they be individuals or governments, as obsessed in the initial stages of a recession/depression with maintainting their position. To do that, debts must be serviced and to do that, "discretionary" spending must be curtailed. That is already happening. The next step which always comes is to start to cast about for ways to protect oneself from the continuing depreciation of the currency based on the debt which is increasingly hard to service. That is when the precious metals always, historically, come into their own.
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 move up to the $US 640 level early this week pushed the short-term 10 day moving average (MA) back above its longer-term 20 day counterpart. Gold then promptly fell back below both moving averages to once again test the $US 610 level, the level it has rebounded from in each of the past three weeks.
On the weekly chart, the 10-week MA crossed below the 20-week MA converged for the first time this year in mid August. As you can see, Gold has been basically going sideways for the past two months. Last week, we said this: "Clearly, with the weekly "range" being more and more compressed, the price is going to have to break one way or the other in the near future." We had the break to the upside on September 5 when Gold bolted to $US 640 only to have it rebound all the way back to the bottom of the recent range by weeks end.
We now have a potential double bottom on the $US 2 x 3 point and figure chart. To get the double bottom, Gold is going to have to close at $US 618 or higher without falling further. To negate the double bottom, Gold is going to have to close at $US 606 or lower. If it does that, and does not stop at the $US 600 level, there is the potential for Gold to fall back to its mid June lows in the low $US 560s.
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."
This week, the $US 640 close on Tuesday, September 5 turned the chart up again. But that was followed two days later by another downturn as Gold slipped back below the $US 620 level. It is easy to see the support on this chart - at the $US 615 level. Any breach of this support - a close below the $US 610 level, would signal at best a test of $US 600. Right now, another upturn on the chart requires a spot future Gold close of $US 630 or higher.