The reaction to Gold's seven week rise of almost $US 100 came last week when Gold fell $US 17.40 to $US 729.80 on October 3. This was inevitable, especially given the fact that the US Dollar had fallen to an all time (post 1973) low in the previous week. As soon as the currency "stabilised" and started a mild bounceback, the conclusion came to the fore that "they" won't let it fall any lower than that. Bang - "profit taking" in the Gold sector.
That "profit taking" didn't last long. As you know, Gold bounced back this week to reach yet another bull market high on October 11 when the spot future close climbed above the $US 750 level for the first time in this bull market. In fact, in its entire post August 15, 1971 history, Gold has only closed higher on a spot future basis seven times. These were on January 16, 17, 18, 21 (its all time high), 22, 23 - and on February 11, 1980.
In one sense, $US Gold is getting into pretty rarefied air, as shown by the data above. But we must never forget while we wait patiently for Gold to challenge its $US 850 all time high that in terms of the purchasing power of the US Dollar, that January 1980 high equates to a Gold price of almost $US 2300 today..
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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The USDX has now closed below the vital 80.00 level since September 7 and fell to the lowest point in its history - going all the way back to March 1973 - on September 28. Gold prices have now remained above the previous ($US 721.50) bull market highs they set back in May 2006 since September 19 and reached antother bull market high this week.
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 this week the price was back well above both moving averages. Gold has closed above the $US 750 level for the first time in this bull market.
On the weekly bar chart Gold had been in a $US 645-690 trading range for the whole of 2007 until early September. 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. And this week, of course, Gold breached $US 750
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. Last week, we put the first support point at or about the $US 730 level. That is where Gold turned up again. On the upside, a spot future close of $US 752 or higher would produce a HUGE "breakaway gap" on the chart. The close on October 11 did not - quite - reach that point.
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.
This week, the chart turned up again as Gold climbed above the $US 750 level on October 11. On the chart, any Gold spot future close of $US 760 or higher (without an intervening downturn) would produce a HUGE breakaway gap. That would be an EXTREMELY bullish development.