Last week, we talked about Gold's "volatility". It shows no signs of letting up. Here's a selection of daily moves since the beginning of 2007:
January 3 - down $US 8.80
January 5 - down $US 19.30
January 9 - up $US 5.60
January 12 - up $US 13.00
January 17 - up $US 7.40
January 18 - down $US 5.20
January 19 - up $US 8.30
What all that has added up to is a Gold price which, on January 19, was down $US 1.40 from the $US 638.00 level at which it started the year. Not much action looking at the "big picture", but a LOT of bouncing around on a daily basis, probably more volatility in both directions than at any point thus far in the post April 2002 Gold bull market.
It also added up to calls from many quarters that the Gold bull was "over" after the two big falls (on January 3 and 5) which began the year.
Last week, the Gold price was boosted by the unexpected move by the Bank of England (BoE) on January 11 to raise their controlling interest rates by 0.25%. This week, Mr Bernanke and his colleagues at the Fed have been out en masse telling everyone who will listen to them that the "inflation problem" in the US has not gone away.
Not too surprising, given the fact that Mr Bernanke and his colleagues have not gone away either. But for "public consumption", the Fed is trying to get the message out to the American public and Wall Street that they won't be lowering official US rates anytime soon. Since 1990, the longest the Fed has stood pat before reversing direction at the top of a series of rate rises has been seven months - from May 2000 until January 2001. This similar "pause" has almost equalled that record. The Fed has stood pat since June 2006. By historical precedent, as US rate move, one way or the other, should be coming soon.
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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Two weeks ago, the shorter-term (10 day) moving average crossed back above its longer-term (20 day) counterpart on the daily chart. Last week, the shorter-term MA crossed back below its longer-term counterpart - but only just. This week, the shoter-term MA remains below its longer-term counterpart, but with the price remaining well above both MAs, that situation will be reveresed yet again unless Gold plummets next week. Given the fact that the Gold price has been above both MAs for the past two weeks, this is highly unlikely.
On the weekly chart, the Gold price bounced back well above both moving averages in mid December only to dip back below them two weeks ago. Last week, Gold jumped back above both MAs yet again and has or course remained above them this week. 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, last week's upturn has now climbed right back to the top of the previous high. 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. Two weeks ago,, Gold slumped $US 19.30 on January 5 and the chart turned down. Last week, there was yet another upturn triggered by the $US 13.00 jump on January 12. This week, the upturn has remained intact and Gold has added to Xs to the chart.
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. We have the first sign of it doing that as Gold topped the $US 635 level this week. A definitive break of the current distribution area requires a spot future Gold close of $US 660 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. The trigger to signal this is the $US 660 or higher Gold close already mentioned. We'll see what happens.