For the second time in less than a month, the President of the United States has waded into the exploding credit crisis to give "reassurance" to the teeming billions. Back in November, Mr Bush waded into the fray to assure everyone that the US did indeed have "a strong Dollar policy". This week, Mr Bush has surfaced again to assure everyone that his government has a plan to "fix" (and we use the word advisedly) the subprime problem in general and the spectre of millions of foreclosures in particular.
For more on Mr Bush's latest "plan", see see Gold This Week. Wall Street's reaction to it was, of course, quite predictable. The US Dollar had its biggest gain for months. US (and world) stock markets surged. And Gold stopped dead once it had recovered to the $US 800 level early in the week and then fell back into the mid $US 790s as the week ended on December 7.
Next week, the FOMC meets for the last time this year. Nearly one in two of the primary dealers polled are expecting an 0.50 percent Fed rate cut. The rest are expecting another 0.25 percent cut. Nobody is silly enough to speculate that the Fed might emulate their colleagues at the ECB who stood pat on rates when they met on December 6.
We are in for a no holds barred fight to the finish for the rest of this year to keep the global credit system functioning and even more important, to try to make sure that the waning confidence in that system is not eroded even further. It's a tall order, but they might pull it off - THIS YEAR. Next year? No chance whatsoever.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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The USDX has now closed below the vital 80.00 level since September 7 and fell to the lowest point in its history - going all the way back to March 1973 - on November 22. Gold prices have now remained above the previous ($US 721.50) bull market highs they set back in May 2006 since September 19.
Gold gained $US 19 on the first two days of this week and retained those gains until Friday, when it fell back below the $US 800 level. On the daily bar chart, you can see that the 10 and 20-day Moving Averages (MA) have converged right at that $US 800 level. The Gold price is fluctuating right around that level too.
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. Gold closed above the $US 800 level for the first time in this bull market on November 2. Since then, there have been two attempts to challenge the old $US 850 high, both of them falling short and correcting. The spread between the Gold price and the shorter-term (10 week) MA has now been reduced to $US 8.00
For the past three weeks in a row, Gold's intraday lows have been right on that 10-week MA.
On the point and figure chart, Gold is now in a fairly large distribution zone about $US 20 each side of the $US 800 level.
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 rose almost $US 100 in a straight line with no corrections whatsoever.
Before the present run up, Gold's 2007 high 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.
The spot future price broke above that $US 690 level in early September went on to breach the $US 745 level with its close on October 1. And then, we had a downturn on the chart with Gold's close below $US 730 on October 2 and 3.
Then, just over a month ago, Gold closed above $US 760 on October 18 and 19. This is three clear "Xs" above the previous high and produced a HUGE breakaway gap, by far the biggest in the whole history of the current bull market stretching back to 2002. Gold then continued to rise on the chart, rising to and above the $US 800 level on November 2 and then reaching $US 835, only 3 "X"s below its 1980 all time high.
That's when the Gold price started getting "volatile" - in both directions. This week, we had yet another upturn on the chart when Gold rose $US 13.00 on December 4 to close above $US 800 again.