On Thursday, August 16, the chaos in stock markets, in the global interbank payment system, and with the relative exchange rates of currencies, reached a peak. What had been a swiftly rising tide of capital flight became a tsunami. "Liquidity" was sought at all costs. This was the day that commodities and precious metals prices were hit, after having stood almost unchanged (in $US terms) up to that point. On Thursday, August 16, the Comex Spot Future Gold price slumped by $US 20.60 and the Silver Price by a whopping $1.06. Almost all of these falls took place, as is usual in these circumstances, in New York.
Currencies gyrated in amazing ranges (on August 16, for example, the Australian Dollar lost well over $US 0.02). Stock markets accelerated downwards. Worse still, more and more companies and investment entities large and small found themselves in a position where they could not raise capital on the markets at rates they could afford to pay - or could not raise capital at all because NOBODY would lend to them. Everybody caught in this huge downdraft had to raise capital FAST. So they sold what could be sold. And since Gold and Silver can always be sold in any kind of market, they were sold down - HARD.
For the third week in a row, Gold was sold off. For the third week in a row, it rebounded instantly. The measure of the intensity of the situation this week was that Gold fell harder and recouped less of its losses the next day. The other measure is that the world's lender of last resort chose to act. On August 17, the US Fed announced (at 8:15 AM - before US markets opened), that it was cutting its Discount Rate (the rate it charges US banks to "discount" debt paper deemed acceptable by the Fed) by 0.50% from 6.25% to 5.75%. The damage had already been done in Asia and markets there had closed. The reaction on European markets and on US markets when they opened was instant, they soared upward.
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. The $US index actually rose this week as US investors repatriated HUGE amounts of capital from overseas.
The $US 20 Gold price fall on August 16 is shown most starkly on the daily chart. Please note that before that, the 10 and 20-day moving averages were coming together with the Gold price more or less straddling them. Gold was not sold off in Asia or in Europe, it was sold off - on the US (paper) futures markets when the pressure to gain "liquidity" peaked in the US. The Fed recognized this was happening, hence their decision to lower their Discount Rate the next day.
Last week, the Gold price remained above the 10 and 20-week moving average. Due to the $US 20.60 fall on August 16, that position has not been maintained this week. As you can see on the chart, the trading range of $US 640-690 which has held the price since the beginning of the year is still being maintained.
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 fell out of its recent $US 660-675, this week, and is now climbing back up towards it with the $US 8.60 recovery on August 17
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. And this week, of course, Gold has retreated further on the chart with the $US 648.30 spot future close on August 16