The big story this week, though you would never know it from a perusal of the US financial press, is the continuing slide of the US Dollar. This is ominous on two counts. First, the USDX has this week plunged to new lows in its post January 2002 bear market and is getting perilously close to the ultimate "demarcation" line of 80.00 on the index. It closed on January 13 at 80.39.
The other and potentially even more ominous factor is that over the past few days, the Dollar has begun to fall against the darling of the "carry trade" world, the Japanese Yen. If this continues, it will put increasing pressure on the Fed to "do something" about supporting the Dollar via official interest rates. If they don't do that, and if the steady global official interest rate increases are joined by the Bank of Japan, the US Dollar faces a very bleak future on the world's currency floors.
Gold in US Dollar terms is certainly up usefully this week, but its present level does not BEGIN to reflect the pressure that the US Dollar is under. It will, it's just a matter of time.
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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We are looking at an all time high on the Dow here partnered with a bear market low in the US Dollar. As you know, the Dow broke through this week to exceed the highs it set in early June. The fuel has been provided by gargantuan takeover offers and even more gargantuan stock buy backs, notably by General Electric using $US Billions in borrowed money.
A healthy rise on the daily chart this week. Once again, the shorter-term moving (10 day) average (MA) has crossed above its longer-term (20 day) counterpart. As you can see on the chart, there has been a fairly abrupt upturn on both moving averages with the Gold price spending the week comfortably above both.
On the weekly chart, the shorter-term 10 week MA crossed below its longer-term 20 week counterpart for the first time since last October three weeks ago. But now, for the first time in more than two months, the spot future closing price has closed for the week comfortably above both MAs. The Gold price itself is at about the midpoint of the $US 645 - $US 690 trading range it has been stuck in for most of the year so far.
The situation on the point and figure chart shows clearly how hard the Gold price has been pushed down since it hit $US 690 twice in April. 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. An obvious change of sentiment this week on the chart, but Gold is going to have to rise into at least the mid $US 690s before a new uptrend line can be drawn.
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.
Then, Gold closed above the $US 690 level twice - on April 16 and again on April 20.
Since then, Gold fell as low as $US 653.30 on May 24 only to reach the $US 670 level on June 1 and turn up again. Then we had another DOWNTURN on the chart due to the $US 14.60 fall on June 8. The close below $US 645 on June 27 added another "O" to the chart two weeks ago. Now, we have another upturn on the chart with the spot future Gold price closing above $US 660 on July 9 and above $US 665 on July 12.