Once again this week, Gold and precious metals in general have been sidelined by convulsions in the paper money markets and in the paper money financial SYSTEM itself. For the first three days of the week just ended, Gold more or less ran on the spot while US stock markets staged a brisk recovery on the back of rumours that Fannie Mae and Freddie Mac were about to be recapitalised.
The ECB (European Central Bank) spoiled the fun on August 9 with their sudden announcement that they were going to inject almost 100 Billion Euros into the system. This came in the wake of an announcement by the biggest commercial bank in France that it had halted withdrawals from three of its investment funds because it could no longer "fairly" value the holdings. Needless to say, part of these holdings consisted of US subprime debt paper. Global stock markets instantly swooned, US Treasury debt yields plummeted, and Gold sold off $US 13.00 as the scramble for "liquidity" ramped up again.
The stampede is still into government bonds, and on August 9, the rush for liquidity was so intense that precious metals were sold off too. But just as happened last week, they rebounded immediately. On Friday, August 9, the spot future Gold price rebounded by $US 8.90 to close the week with a slight decline.
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. To this point, the vital 80.00 level on the $US index (USDX) is holding.
Three weeks ago, the daily Gold chart completely realigned itself in a bull formation. Since then, the price action has been getting increasingly volatile. This week, the spot future Gold price has managed to end the week at almost the precise level as the longer-term (20 day) moving average (MA). In order for the shorter-term MA to continue its curve upward towards the longer-term MA, the Gold price is going to have to - at the very least - stay above the $US 670 level for a while yet.
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 six weeks ago. Last week, the spot future price moved back above the two MAs with the $US 7.90 jump on August 3. This week, the position has been maintained due to Gold's recovery on August 10.
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. As you can see, Gold is now trading sideways in a band between $US 660-675.
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 10 at $US 670.30.