Last week, the roof fell in on May 9 and 10 when the Fed decided not to raise US rates and the Bank of England the next day decided they WOULD raise British rates. Gold fell by $US 20.40 over those two days. This week the roof fell in again, mainly on May 16 when the spot future price dropped $US 13.00. The catalyst this time was a rebounding US Dollar on the back of a report from the US Commerce Department that US housing starts increased 2.5 percent in April. What was not noticed (on purpose?) was that at the same time, building permits fell 8.9 percent to their lowest level in a decade.
Last week, we said this:
"Behind the scenes, evidence has emerged that the European nations (those subject to the "Washington Agreement" under which their Gold selling is limited collectively to 500 Tonnes per year) Have greatly increased their Gold selling (compared to last year) over the past two-three weeks."
That was confirmed this week. Spain, for example, has sold 80 Tonnes of Gold over the past six weeks. That's not all that Spain (and Portugal and Greece) have been selling. By the end of this week, Spain was down to a monetary reserve level sufficient to pay for its imports for all of twelve days. Spain runs the second biggest current account deficit in the world, The only nation which runs a bigger one is the USA.
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 due to the massive blow off of the Dow over the past month or so, its percentage gain on this table is now almost as big as the percentage loss of the US Dollar Index over the same period. Almost, but not quite.
Three weeks ago, Gold broke a string of seven straight weekly rises. Two of the past three weeks have seen the metal hit hard. The fall last week has pushed the price well below both 10 and 20-day moving averages (MA) while the shorter-term MA has once again crossed below its longer-term counterpart. This week, the price has fallen further. The price closed for the week at $US 662.00, more than $US 10 below its moving averages on this chart.
On the weekly chart, the Gold price closed last week almost exactly at its shorter-term (10 week) MA after having fallen below it on the previous day. This week, the Gold price has closed just above its longer-term (20 week) moving average, again afater having fallen below it on the previous day.
The situation on the point and figure shows clearly how hard the Gold price has been pushed down over the past three weeks. The first and most obvious feature is that the Gold price has now fallen BELOW the uptrend line on the chart. Please note that this uptrend line does NOT stretch back to the beginning of the Gold bull market. But it does stretch back to August/September last year, which makes a breach of the line a feature to note carefully.
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.
A month ago, Gold closed above the $US 690 level twice - on April 16 and again on April 20.
Last week, Gold closed above $US 690 again when it rose $US 0.70 on Monday, May 7 to $US 690.40. Then came the Fed's decision not to raise rates on May 9 and Gold fell $US 4.90. Then came the Bank of England's decision to raise rates by 0.25 percent on May 10 and Gold fell another $US 15.50. Go figure! At any rate, the fall on May 10 produced another downturn on the $US 5 x 3 chart, this one creating a "double top" at the $US 690 level. This week, that downturn has extended to the $US 660 level and very close to the uptrend line.