A quote from last week:
"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."
The next day, Mr Bernanke lowered the Fed's Discount rate - to "reassure" the markets. That has worked, up to a point, after the US stampede into the "safety" of short-term Treasury debt paper on Monday, August 20. By the end of this week, stock markets were eating away at their losses of the previous week and Treasury short-term note yields had rebounded higher. Gold? Well, aided and abetted by a $US 9.00 rise on August 24, Gold had recovered its losses of Thursday, August 16 in the climax (so far) of the rush to "liquidity".
The problem for Mr Bernanke, despite all the "tools" he is so eager to use to re-establish "calm" (read rising) "asset" (read paper) markets, is that a global climate of risk aversion has now replaced the fevered borrowing that pushed the US stock market up to record highs just over a month ago. The next step is for this new found fear of lending to percolate into the REAL economy, which it inexorably will. Once that happens, those who keep flying to government debt paper for "safety" will find out just how "safe" it really is. At that point, the pressure under the Gold price is going to be VERY hard to resist. But there is no doubt that Mr Bernanke and his fellow Central Bankers will try.
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 9.00 rise in the Gold price on August 24 was accompanied by an 0.50 point fall on the $US Index.
The $US 20 Gold price fall on August 16 has been recovered, in six trading days. Please note that before the fall, the 10 and 20-day moving averages were coming together with the Gold price more or less straddling them. Please note further that the two MAs have turned slightly up again - at a lower level - with the Gold price once again above both.
We apologise for the "sketchy" nature of the Daily chart. We have not been getting intraday price quotes (intraday highs/lows) from our data provider in recent days. We hope this problem will rectify soon.
The weekly bar chart continues its inexorably sideways progress this week. This flat "sine wave" pattern has now lasted since the beginning of the year, during which Gold has been trading in a band between $US 645 - 690. This week, the spot future price climbed back above the 10 and 20-day moving averages.
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, last week only to ckimb right back to the middle of it this week with the $US 9 rise on August 24 to $US 668.
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. Two weeks ago, we had yet another downturn on the chart exacerbated by the $US 20 fall of August 16. And this week, we have yet another upturn, once again right at the uptrend line on the chart.