A momentous week, even if a short one. With stunning predictability, Gold dropped $US 11.70 on Tuesday, the first day's trading in the US after the long President's Day weekend. The fall was, of course, accomplished in US trading. And it was, as usual, put down to "fund selling".
As you know, there was something of a turnaround the next day, when the Comex Gold price staged a $US 23.10 leap to crack the $US 680 level for the first time since last May. This time there was no "glib" explanation, although dark rumours abounded about the commercial traders covering their shorts. As you probably also know, the "speculators" on the Comex are overwhelmingly on the long side of Gold but the "commercials" (aka the "funds) are almost as overwhelmingly short and have been so throughout the Gold bull. We challenge anyone to find another "market" in which the big traders have been betting against the trend for so long.
Here's a quote from MarketWatch which purports to "explain" the Feb 21 leap in the Gold price
"A slew of factors - higher crude oil, fund buying, technical momentum and Iran's nuclear program - combined to send gold and silver futures sharply higher Wednesday, traders and analysts reported."
Not a word said, of course, about the increasingly parlous state of the US credit expansion and the growing "disquiet" over the collapse of the "sub prime" sector of the US mortgage market.
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.
On the daily bar chart, the price has pulled away from the 10 and 20 day moving averages for the first time since Gold began the current rally from just above the $US 605 level back in early January. Please note that this has only happened over the past three days, after the $US 11.70 drop on Tuesday pushed the intraday price down to hit the longer-term (20 day) moving average exactly.
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 Please note the increased "volatility" this week, indicated by the "longer" bar for the week's trading. Note also that Gold closed for the week right at the top of this bar.
On the point and figure chart, take a look at the latest two small "distribution zones" on the way up to Gold's current level. These are known as "trader waves". What usually happens after such waves on a point and figure chart is that the upside momentum accelerates. We'll see if it happens this time.
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.
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. Six weeks ago, there was yet another upturn triggered by the $US 13.00 jump on January 12. Since then, the upturn has remained intact with Gold closing above the $US 645 level three weeks ago and moving back into the "black" for the year.
Two weeks ago, Gold broke out of a tight distribution area by closing above $US 665. This week, it has kept on rising with the $US 23 jump on February 21 giving us an "X" at the $US 680 level on the chart.
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 last 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. The only remaining resistance point is the May 2006 bull market high at the $US 720 level.