Gold prices recovered quite well this week, ominous (for the paper asset crowd) since the fearful suspicion that the days of "easy money" might be over is swiftly turning into a horrified fear that this is actually the case. The level of disquiet has now reached a point where (mostly outside the US so far) the mainstream financial press is starting to ask questions about the banking system itself.
Last week, the global paper markets trembled on their wobbly bases as investors everywhere stampeded into "liquidity" and investments which they thought offered them financial safety. That process has certainly continued this week, notably on August 3 when US stock markets again took a dive and yields on Treasury paper plummeted. The big difference this week was that Gold prices did NOT fall along with stock indices, they rose, especially on August 3 when the Comex spot future price bolted upwards by $US 7.90.
The stampede was still into government bonds, but if the market action on August 3 is anything to go by, it is no longer OUT of precious metals. This is potentially an exceedingly dangerous turn of events for the Fed, which meets next week to decide on official US rates. With the USDX ($US index) once again threatening the 80.00 level (it closed down 0.54 at 80.06 on August 3), they are facing the daddy of all "no win" situations. Meanwhile, steadfastly refusing to recognise the danger to the currency, many on Wall Street are now clamouring for the Fed to start CUTTING rates again.
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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The Dow percentage gain in this table is again well below the $US Index loss over the same period. And the gap is widening. What this means is that foreigners who have held stocks on the Dow over the last five years plus are now in an increasingly LOSING position on their investments. Nobody who holds Gold is in anything like the same position, as the percentages in the table show only too clearly.
Two weeks ago, the daily Gold chart completely realigned itself in a bull formation. Last week, the shorter-term (10-day) moving average (MA) remained above its longer-term (20 day) counterpart but the spot future Gold price dived below both averages in the rush for "liquidity". As you can see from the chart, the continuing rush for liquidity has not adversely affected Gold this week, with the Gold price moving back above both MAs on August 3.
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. This week, the spot future price moved back above the two MAs with the $US 7.90 jump on August 3.
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 an upturn on the chart from the $US 660 level with Gold having recovered almost exactly half its loss of the previous week.
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. Last week, we had yet another downturn on the chart. An upturn requires a close of $US 680 or higher. Gold closed on August 3 at $US 672.50.