Two weeks ago, 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. Last 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. This week, the poor old roof got even closer to the "floor" with a $US 9.30 fall on May 24.
Apart from the ever more outrageous distortions of US government economic stastics as a means of faking the true state of the US economy, the constant feature in Gold's latest pullback is ever rising volumes on the US Gold paper markets. The biggest daily volume yet in the whole sequence took place on May 24, the day that the spot future price fell $US 9.30, when volume equalled almost 200,000 contracts.
The European Gold selling is well documented. Europe has a 500 Tonne ceiling (under the Washington Agreement) on the amount of Gold it can collectively sell in any given year. The present level of selling cannot continue. The present HUGE volumes on the US futures markets can continue, until the risk and/or the credulity of the players is stretched beyond the snapping point.
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.
A month ago, Gold broke a string of seven straight weekly rises. Since then, the Gold price has tumbled from just above the $US 690.00 level to close on May 25 at $US 655.30. On the daily chart, this has pushed the price down below both moving averages (MA) and, of course, the shorter-term (10 day) MA has crossed back below its longer-term (20 day) counterpart in the process. The present spot future Gold price is about one percent below the 20 day MA.
On the weekly chart, after having closed almost exactly on its shorter-term (10 week) MA last week, the further weakness on the Gold price this week has pushed Gold back below both 10 and 20 day moving averages this week. In relation to its MAs, this is the lowest Gold has been this year. Please note however that the shorter-term MA remains above its longer-term counterpart.
The situation on the point and figure shows clearly how hard the Gold price has been pushed down over the past month. 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. This week has simply seen an extension of the latest downward line of "O"s on the 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.
A month ago, Gold closed above the $US 690 level twice - on April 16 and again on April 20.
Since then, Gold has fallen as low as $US 653.30 on May 24 before closing the present week up $US 2.00 at $US 655.30. The May 24 close pushed the chart down to the $US 655 level and, as you can see (click the link above) right back to its first uptrend line.