As the big gyrations on the paper markets of last week settled down this week and as the Yen began to weaken once again, commodities in general and the precious metals in particular made a very predictable comeback from their BIG sell off over the week of February 26 - March 2..
As you can see on the weekly Gold chart, the metal rose $US 7.90 from its close of last Friday. Gold is up $US 12.80 from the low point ($US 639.80) it reached on March 5.
The sell off last week was nothing more or less than a bursting of global investors' complacency. This week, we have heard the usual litany from US financial "officials", notably Treasury Secretary Paulson, to the effect that the "economy" is in fine shape. The most ominous development of the week was the 0.25 percent interest rates rise by the European Central Bank on March 8 and the biggest one day fall so far this year on the US Treasury markets on March 9. "Officially", the reason for this is given as a much better than expected US employment report which shook Wall Street's faith in an imminenty rate CUT by the Fed. No mention of the ECB rate hike was made.
Incidentally, Europe's broad money supply (M-3) rose by 9.8 percent in January, it's fastest growth in seventeen years. This had a big influence on the decision to raise European rates. The Fed, of course, no longer publishes broad money data and hasn't done so since this time last year.
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:
|
With the Yen giving up a little less than half the gains it made against the $US this week, the $US index rose just under 0.50 points.
On the daily bar chart, the Gold price dipped substantially below both 10 and 20-day moving averages last week. This week, the price has moved up to just touch the shorter-term average at its intraday high ($US 659) on March 9 while the 10 day average has again dipped below its 20 day counterpar - for the first time since mid January. The current correction looks very like the one at the start of 2007.
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 and just touched the 20-week moving average at its intraday low of $US 635.20 on March 5. The subsequent recovery has moved the price back above both MAs.
On the point and figure chart, the $US 39 fall on the Gold price last 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. As you can see, we have the turnaround this week. Support therefore lies at or just below the $US 640 level.
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:
|
As always, we refer you to the strategic $US 5 x 3 point and figure Gold chart for an overview on the situation.
The big Gold price falls last week brought about the first downturn on this chart since the beginning of January. That one found a bottom just above the $US 600 level. This downturn has reversed itself at the $US 640 level. The spot future Gold close of $US 655.50 on March 8 has turned the $US 5 x 3 chart up again.
The 2007 high spot future close for Gold so far in 2007 was set on February 27 at $US 687.20. That's less than two weeks ago. The big falls on the Gold (and Silver) price came as global investors scrambled to "get liquid" in the big global stock market sell off since then.
So far, we have had the knee jerk reaction of a flight into government debt paper. But this week, the US Treausury market suffered its biggest one day sell off so far this year on March 9. It will take time, but inexorably, the truth will dawn on more and more investors that government bonds are NOT a safe place to be. That's what happened in the 1970s. That's what will happen this time too.