The "reverse head and shoulders" formation on our $US 5 x 3 Gold chart was resolved last week when Gold broke above the $US 660 level. This week, Gold fell $US 5.00 on Monday, recovered the losses by Wednesday, and closed the week with a modest gain of $US 1.30.
Given the BIG falls in the US Dollar, this was a modest gain indeed. Given the major factor which contributed to these US Dollar falls, the US Treasury announcement of a HUGE reversal of foreign demand for US debt paper in December 2006 (see Gold This Week), the calmness on the Gold markets takes on an even more notable demeanor.
On February 13 through 15, the US Dollar Index (USDX) fell more than one point, from 85.00 to 83.91. Over the same period, the Dow made daily new highs and, even more startling, US Treasury yields fell dramatically. In any normal (or sane) economy, the exact opposite would have happened. We have no proof that the Fed has embarked on yet another bout of "monetisation", but if they have, the movements in the US stock and bond markets are precisely what we would have expected to happen.
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.
Three 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. A modest gain this week, but the chart is still "all systems go".
On the weekly chart, the shorter-term (10 week) moving average has remained above its longer-term (20 week) counterpart for more than 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 month After a $US 21.30 rise last week, Gold has been much more reticent this week. On this chart, Gold has now marginally exceeded 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. Gold closed on February 16 at $US 668.80.
On the point and figure chart, Gold broke above the $US 640 ceiling which has been capping every rise since last August three weeks ago. When Gold closed above $US 652 on February 1, a new (short-term) uptrend was established. Gold is not at $US 668 on this chart. 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 two weeks ago 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 is Gold breaking that sequence. Last week, Gold did just that, closing not only above the $US 660 level but above $US 665. That remains the situation with the $US 1.30 Gold rise this week.
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.