Is this the start of the grand "re-awakening" of Gold? Too early to tell yet, but the metal has bolted upwards by a bit more than $US 18.00 over the past two days. No obvious reason for it in the rest of the markets. The Chinese stock market has had a hiccup this week, but its gain for the year is still almost 50 percent. The US Dollar has been flatlining against the major (Euro, Yen, Yuan) currencies, although the Canadian and Aussie Dollars have been climbing against it. This is particularly true for the Canadian Dollar which is at 30 year plus highs against its US counterpart and will, if its climb continues, gain parity well before the northern summer is over.
Actually, there IS one feature of the paper markets which IS having a "salutary" effect on $US Gold prices. This is the inexorable rise over the month of May in Treasury yields. Conventional "wisdom" holds that higher rates are actually "bad" for Gold because they put into stronger focus the fact that it doesn't pay any interest at all. In FACT, Gold's biggest bull runs ALWAYS come at times of rising market rates. The reason for this is very simple. A market rate rise, especially rising rates for government debt paper, is always an indicator of declining confidence in the currency in which the debt paper is denominated. The signal example of this the 1970s, when Gold soared right along with Treasury yields from 1972-74 and again from 1978-80.
The other major factor which has led to this sudden surge in $US Gold prices is the announcement by the European Central Bank (ECB) that it has no plans to sell more Gold between now and September.
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:
|
Please note that due to the massive blow off of the Dow over the past two months, its percentage gain on this table has now caught up with the percentage loss of the US Dollar Index over the same period. Note also that the US Dollar Index hardly moved this week, it was up 0.02 from 82.27 to 82.29.
You can see the stark leap in the Gold price on May 31 - June 1 best on the Daily chart. Note that the price has leaped above both moving averages, having regained nearly half of its May losses over the past two days. The shorter-term (10 day) Moving Average (MA) remains below its longer-term (20 day) counterpart, but that won't last long if this rise continues.
On the weekly chart, Gold fell back below both 10 and 20 day moving averages last week. The surge this week has lifted the Gold price back well above its 20-week MA and to a point just below the shorter-term 10 week MA. The shorter-term MA remains above its longer-term counterpart, as it has throughout 2007. We now wait to see if the Gold price can move above the 10-week MA, which presently stands at $US 674.70
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. The surge this week has done no more on this chart but recover the losses made in the second half of May. Only when the price gets up to $US 680 or higher will we have a solid indication of gathering strength.
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 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.
Then, 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. And now has come a surge in the Gold price bringing it back above the $US 670 level and thereby causing another UPTURN on the chart. Please note that this upturn has occurred right at the first uptrend line on the chart, thereby confirming it.