If you cast your mind all the way back to August 16, the day that global stock markets got a serious case of the "vapours" and government bond yields plunged everywhere as the credit squeeze REALLY bit, you might remember a $US 20.00 fall in the Gold price on the day. The next day, August 17, the Fed caved in to the pressure and started cutting interest rates - knocking 0.50 percent of their Discount rate on the day.
That $US 20 Gold fall on August 16 took spot future closing price down to $US 648.30. Over the following seven weeks, the Gold price rose continually with hardly a pause. The peak, so far, came last Monday, October 1, when the spot future Gold price closed at 747.20. That's a rise in an almost straight line of just short of $100.00 - or about 15.4 percent.
A reaction was inevitable. It duly came this week, on October 2, when the spot future Gold price fell $US 17.40, its first fall of any magnitude since that $US 20 August 16 fall which formed the base for the present surge. As you know, by the end of the week, Gold had made up about two-thirds of those October 1 losses, the spot future price closing for the week at $US 741.30 on October 5.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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The USDX has now closed below the vital 80.00 level for a full month and fell to the lowest point in its history - going all the way back to March 1973 - on September 28. Gold prices have now remained above the previous ($US 721.50) bull market highs they set back in May 2006 since September 19.
As you can see on the daily bar chart, the $US 17.40 Gold price fall on October 2 brought the price back below the shorter-term (10 day) moving average (MA). It didn't stay there for long. By the end of the week the price was back well above both moving averages. The "bull" on this chart is firmly intact.
On the weekly bar chart Gold had been in a $US 645-690 trading range for the whole of 2007 until a month ago. The spot future Gold price closed above $US 700 for the first time since May 2006 on September 7 - the day the USDX dipped below 80.00 - and has remained there ever since. The shorter-term (10 week) MA remains solidly above its longer-term (20 week) counterpart on this chart with the price firmly above both.
The point and figure chart here shows starkly the almost exactly $US 100 upmove on Gold - without a single correction. We got the correction this week, with the $US 17.40 fall on October 2. On the downside, the first support point is at or about the $US 730 level. On the upside, resistance is at the October 1 high of $US 747. Above that, a spot future close of $US 752 or higher would produce a HUGE "breakaway gap" on the chart and strongly signal much higher prices to come.
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.
This chart is a superb example of the value of point and figure charts for showing LONG TERM trends in a market. Please note the simple fact that the $US 20 fall in the spot future Gold price on August 16 brought the chart right back to the uptrend line which stretches right back to the beginning of the bull market. Gold turned right there, and has gone straight up ever since.
Before the present run up, Gold's 2007 was just above the $US 690 level. It closed above that level twice, on April 16 and again on April 20. That gave us the double top on the chart.
Now, of course, the spot future price has broken above that $US 690 level and gone on to breach the $US 745 level with its close on October 1. And now we have the first downturn on the chart with Gold's close below $US 730 on October 2 and 3.
On this chart, support is at the previous bull market high of $US 720 set in May 2006. Resistance is at the previous high of $US 745. Any close of $US 760 or higher would set up a HUGE breakaway gap on this chart too and signal the high likelihood that Gold is going to take a run at that $US 850 January 1980 all time high in the not too distant future.