For the past two weeks, this is the paragraph with which we have closed our Gold Bull Market This Week:
"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."
As you know, the spot future Gold price closed up $US 9.50 - to $US 667.50 - on Friday, February 9. We have our close above $US 660. The "reverse head and shoulders" formation on our $US 5 x 3 Gold chart has been resolved. As is almost always the case for such formations, no matter what the market, it has been resolved on the UPSIDE.
The reason for Gold's sudden surge - up $US 15.20 over the last two days of the week - is simple. All of a sudden, a great wave of "concern" has erupted in US banking and financial circles about the huge surge in mortgage defaults and foreclosures in the US. Two of the three top "sub-prime" mortgage lenders warned on February 8 that the impact of bad loans was hollowing out their bottom line. On February 9, they were joined by Countrywide, the largest mortgage lender in the US.
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 percentage gain on the Dow over the period shown in the table remains considerably LESS than the percentage loss in the US Dollar index over the same period. The Gold gain continues to dwarf both, of course.
Two weeks ago, the shorter-term (10 day) moving average (MA) crossed back above its longer-term (20 day) counterpart yet again on the daily chart. Look at the two moving averages now on this chart, and the price itself. The shorter-term MA is comfortably above its longer-term counterpart with the price well above both. And February 9 was a "gap up" day on the chart. On the daily chart, it's all systems go.
On the weekly chart, the shorter-term (10 week) moving average has remained above its longer-term (20 week) counterpart for two months now, since the week ending on December 8, 2006. The spot future Gold price has closed above both moving averages for the past three weeks, and widened the gap this week, a week during which the spot Gold price rose by $US 21.30 or 3.30 percent. On this chart, Gold has almost (but not quite) reached its highest point since the late May/early June sell off of last year. That high point was $US 668.00 set on July 14, 2006.
On the point and figure chart, Gold broke above the $US 640 ceiling which has been capping every rise since last August two weeks ago. When Gold closed above $US 652 on February 1, a new (short-term) uptrend was established. With the $US 20 plus jump this week, Gold has almost completed the distribution zone it has been in since the middle of last year. A close above $US 674 would leave no more resistance points - except the $US 721.50 bull market high set last May.
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. A month 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 last 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. This week, Gold has done just that, closing not only above the $US 660 level but above $US 665 with its $US 9.50 jump on February 9
The "reverse head and shoulders" on this chart is clear, as is the fact that Gold has now broken HIGH from the right shoulder. Please note the new and slightly steeper uptrend line which was created when Gold breached the $US 660 level this week - three clear Xs above its previous high. We now have the signal on this chart which we have been waiting for ever since August 2006.