There was no apparent reason for Gold's sudden fall to just below the $US 675 level at $US 674.90 last week. Nor was there any apparent reason for Gold's sudden turnaround this week which saw the spot future price jump $US 14.60 on May 3 and 4 to end the week at $US 689.70 - a little less than $US 3.00 below the $US 692.00 spot future closing high for 2007 it set just two weeks ago. Yes, REAL inflation (the increase in the total stock of money) was running rampant this week, but no more rampant than it has been running for most of the year to date.
Possibly the announcement by the Royal Canadian Mint this week that they are to produce a 100 Kg pure Gold coin with a face falue of $C 1,000,000 on it might have had something to do with Gold's sudden surge. The 100 Kg coin contains 3,215 troy oz of Gold. At Gold's closing price of $C 763.40 on May 4, the coin contains $C 2,454,330 worth of Gold. The Mint plans to sell them at somewhere between $C 2.5 - 3.0 million. At that price, suffice it to say that we don't expect to many of these coins to be offered over the retail counters in Canada or anywhere else.
At any rate, with the US Dollar having recovered ever so slightly this week, Gold is once again approaching the $US 700 level, a level it has only breached so far in its bull market on four trading days - May 9 through 12 - 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:
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The Dow now has a gain for the year to date, up six percent plus. But look at the table. The Dow's gain in percentage terms since March 2002 still lags far behind the US Dollar index percentage loss over the same period.
Last week, Gold broke a string of seven straight weekly rises. This week, it is up again. As you can see on the chart, the big moves on May 3 and 4 have pushed the Gold price comfortably back above both the 10 and 20-day moving averages - which have now converged at the $US 682 level. It will be interesting to see if the 10-day average dips briefly below its 20-day counterpart next week. A continuation of the price surge of the past two days would likely prevent that.
On the weekly chart, the Gold price remains above both 10 and 20-week moving averages just as it has throughout 2007 to date. The pullback last week moved the price most of the way back to the shorter-term 10 week MA. This week, the price has rebounded and is back comfortably above both MAs. Note the resistance at or about the $US 690 level. A continuation of the upward move from present levels next week, especially to levels above $US 700, would be most encouraging.
The point and figure chart shows clearly how Gold has now almost regained the $US 692 2007 high it set two weeks ago. On the downside on this chart, the confirmed uptrend line gives solid support at or about the $US 670 level. On the upside, Gold needs to get 3 clear "Xs" above its previous highs to confirm a new upleg. That requires a spot future close of $US 698 or higher. Of course, any close above $US 700 would signal the high likelihood of a run at the bull market high ($US 720 on this chart).
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.
The big Gold price falls in early March brought about the first downturn on this chart since the beginning of January. The January downturn found a bottom just above the $US 600 level. The March reversed itself at the $US 640 level. The spot future Gold close of $US 655.50 on March 8 turned the $US 5 x 3 chart up again.
Two weeks ago, Gold closed above the $US 690 level twice - on April 16 and again on April 20.
Last week, the chart turned down again when the spot future Gold price fell $US 9.20 to close at $US 674.90 on April 26. This week, that downturn remains intact, but only just. At its spot future close of $US 689.70 on May 4, Gold is $US 0.30 short of reaching the $US 690 level and producing yet another upturn on the chart. Above that, there is the $US 700 level and the $US 720 (on this chart) bull market high set almost exactly a year ago.