Last week it was only Gold (and Silver) that was volatile, falling $US 11.70 on February 20 only to rebound by $US 23.10 the very next day. This week, the entire gamut of financial markets has been "volatile" with the global stock market sell off and the stampede into the "safety" of bonds. Gold has, as always in the first throes of such stampeds, been volatile too - it's down big time.
If the "glib explanation for the 23.10 leap to crack the $US 680 level last week was the commercial traders covering their shorts, that certainly hasn't been the case this week. Open interest has increased throughout the week on the Comex. A combination of more shorts by the commercials and a big liquidation by the "speculators" has led to a big dive in the Gold price.
The sell off this week was nothing more or less than a bursting of global investors' complacency. When that happens, there is an immediate rush to get "liquid". Problem is that such "liquidity" (cash) doesn't provide a "return" so there is an immediate rush into something that does, and that is always government bonds. These are seen to provide "safety". That is where the proceeds from both the stock and commodity/precious metals sales have gone.
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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The Dow lost over 500 points this week.
On the daily bar chart, the pric 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 last week. This week, that move has been savagely reversed, with the Gold price breaking below the 10 day moving average mid week and then breaking below both with the "gap down" day on March 2.
On the weekly chart, the shorter-term (10 week) moving average has remained above its longer-term (20 week) counterpart for three months now, since the week ending on December 8, 2006. This week, the Gold price broke below the 10-week moving average for the first time since January, although it remains above the 20-week MA.
On the point and figure chart, the $US 39 fall on the Gold price this week has taken the chart a little more than halfway back to the uptrend line established when Gold came off its 2007 lows in late January.
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. Two weeks ago, there was yet another upturn triggered by the $US 13.00 jump on January 12. The upturn then remained intact with Gold closing above the $US 645 level three weeks ago and moving back into the "black" for the year.
Three weeks ago, Gold broke out of a tight distribution area by closing above $US 665. In fact, spot future Gold hit its 2007 high on the day of the big 416 point Dow sell off on February 27, closing at $US 687.20.
Then came the reversal, the downturn on the chart on March 1 and the further $US 21.00 fall on March 2. As you can see on the chart, the current downturn has come down about halfway from its starting point to date. The uptrend lines are, of course, still completely intact.