Since Christmas, the $US price of Gold has become even more "volatile". This week, like the last week of 2006, Gold was up sharply, the big $US 13.00 upmove coming on Friday, January 12 on reported fund buying and short covering in the US. Short covering is especially interesting as it took place just before a long weekend - Monday, January 15 is Martin Luther King day in the US and commodity markets will be closed for the day.
So, last Friday Gold slumped $US 19.30 on a positive US employment report which conviced Wall Street that the Fed might not be lowering rates early in 2007 after all. This week, the oil price dove $4.43 or almost 8.0 percent in the four trading days to January 11 before regaining about one quarter of that loss on January 12. The $US index (USDX) rose throughout the week too, before a small loss on January 12. Gold weathered all this, gaining about $7.00 while oil was plummeting and the USDX was rising and then jumping $US 13.00 on the last trading day of the week as oil rebounded and the USDX lost some ground.
But what really helped the Gold price was the unexpected move by the Bank of England (BoE) on January 11 to raise their controlling interest rates by 0.25%. This was the third 0.25% rate rise by the BoE since last August and brings UK and US controlling rates to par at 5.25%. The interpretation - "inflation pressures" still exist.
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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Please note that the $US Gold price was not "helped" by a lower US Dollar this week. The $US index (USDX) was up by 0.42 points on the week.
Last week, the shorter-term (10 day) moving average crossed back above its longer-term (20 day) counterpart on the daily chart. Gold, of course, fell below both MAs. This week, the shorter-term MA has duly crossed back below its longer-term counterpart - but only just. With the Gold price now back comfortably above both, look for yet another crossover next week. It's a torrid time for Gold "day traders".
On the weekly chart, the Gold price bounced back well above both moving averages a month ago only to dip back below them last week. This week, Gold has jumped back above both MAs yet again. With the shorter-term MA still comfortably above the longer-term one, the "buy signal" on Gold has not been erased by the gyrations since Christmas.
On the point and figure chart, we have yet another upturn this week. This chart is turning one way or the other now on a weekly basis while Gold attempts to break above the $US 640 ceiling which has been capping every rise since last August.
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.
A a little over a month ago, we got a downturn followed by an upturn in the same week on this chart.
2006 ended with an $US 18.90 rise on the week and another upturn on the chart. Then last week, Gold slumped $US 19.30 on January 5 and the chart turned down. This week, another week - another turn. Yep, Gold turned up yet again with the $US 13.00 jump on January 12.
As you can see on the chart, the most recent action is a series of lower highs and lower lows forming a congested "distribution area". The first sign of genuine renewed strength on this chart would come if Gold broke that sequence. The first sign of it doing that would be a price of $US 635 or higher.
Looking at the bigger picture on the chart, we have a very well defined "reverse" head and shoulders formation which has now nearly completed its formation. As a rule, when such formations are broken out of, the direction is usually UP. We'll see what happens.