Last week, over the three days between July 18 and July 20, spot future Gold rose $US 18.80. Last week, US and world stock markets were still going up. This week, over the three days between July 25 and July 27, spot future Gold fell $US 24.70. This week, US and world stock markets had their worst week in five years.
This was the week that Wall Street (and the rest of the world) realised that the "game" was up. For months now, the money manipulators on world markets had been telling themselves that the credit meltdown in the subprime sector would be isolated to that sector and not spread to affect the broader markets. They had watched world Central Banks, with the singular exception of the Fed, raise rates repeatedly to try to insulate themselves from what they could see coming. They had watched the US Dollar fall and fall towards the vital 80 level on the USDX. None of that had fazed them. But this week, it hit home that the "easy money" they had been borrowing for takeovers, mergers and share buybacks was simply no longer available. They didn't quite panic, not yet, but they DID surge towards getting liquid and stampede into what they perceive as "safety".
Getting liquid always means selling the assets easiest to sell. Gold is one of the easiest assets to sell, it fell. Stocks are too, they fell even further. The stampede was, as it aways is in the initial stages of a liquidity panic, into government bonds.
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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Thanks to a small recovery in the $US Index late in the week and the worst week on the Dow in five years, the Dow percentage gain in this table is again well below the $US Index loss over the same period.
Last week, the daily Gold chart completely realigned itself in a bull formation. This week, the shorter-term (10-day) moving average (MA) remains above its longer-term (20 day) counterpart, but the spot future Gold price has once again dived below both averages. The liquidity panic is shown by the big downmoves on the last three days of the week.
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 a month ago. Two weeks ago, for the first time in more than two months, the spot future closing price closed for the week comfortably above both MAs. But the big downmove this week has, at best, delayed the "crossover" - shorter-term MA back above longer-term MA - and has basically given up the ground gained last week, plus a bit more.
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. By the end of last week, Gold had recovered most of its post April 2007 falls. This week, we have a simple downturn, with the price right back to what is its first "support" point at or about the $US 660 level.
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 a month ago. The chart turned up again when the spot future Gold price closed above $US 660 on July 9 and reached $US 680 on July 19. This week, of course, we have had yet another downturn on the chart as Gold now hovers just above the $US 660 level.