There is a very old adage on Wall Street which goes like this: "As January goes, so goes the year." That adage has a good track record on US stock markets, which is of course why it has become an "adage". But is the same true of Gold? Let us examine the January performance of the spot future Gold price since the start of this bull market in 2002:
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Fairly inconclusive evidence there. If we exclude the data for 2007 (January isn't over yet), we get three up years and two down years. What IS interesting, however, is that the two big January upmoves came in January 2003 and January 2005. These were the best performing years of the Gold bull market to date. With three trading days to go in January 2007, the spot future Gold price is up on the month, but not much.
The "handicap" facing Gold next week is that the US FOMC meets to decide on US interest rates on January 30-31. There is abundant evidence going back many years to show that Gold tends to either "pause" or retreat in the lead up to Federal Reserve FOMC meetings. Since the press release accompanying these interest rate decisions almost always has the word "inflation" in it somewhere, it simply doesn't do to have a rising or even skyrocketing Gold price to contradict the Fed's contentions about the state of the US economy.
Last week, we pointed out here that 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. Nobody, however, expects it to come next week. US investment circles in general and Wall Street in particular are far too complacent for the Fed to do anything to shock them.
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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This week, the $US index 0.43 points to set a new 2005 high - by a very small margin. This week too, Gold recovered from its early January sell-off to move back into the black for the year.
This week, the shorter-term (10 day) moving average (MA) crossed back above its longer-term (20 day) counterpart yet again on the daily chart. The Gold price itself crossed back above the $US 650 level on an intra-day basis for the first time in at least six months. Despite the slight "backing off" on the spot future closing price on January 26, it is "all systems go" on this chart.
On the weekly chart, the Gold price bounced back well above both moving averages in mid December only to dip back below them three weeks ago. Two weeks ago, Gold jumped back above both MAs yet again and has or course remained above them ever since. 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 above the previous high. This chart has now broken above the $US 640 ceiling which has been capping every rise since last August. To establish a new uptrend line on this chart requires a spot future close of $US 652 or higher. Gold traded above this level over the past week but did not CLOSE above it.
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. Over the first week of 2007, Gold slumped $US 19.30 on January 5 and the chart turned down. Two weeks ago, there was yet another upturn triggered by the $US 13.00 jump on January 12. Sinc then, the upturn has remained intact with Gold closing above the $US 645 level this week and moving back into the "black" for the year.
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 645 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. Gold is slowly getting closer. We'll see what happens.