Last week, the $US Gold price finally exceeded the highs it set back in January 1980. This week, Gold went on to set another milestone, closing above the $US 900 level ever on a spot future basis on January 14 and 15. Then came January 16 and an abrupt $US 20.60 fall in Gold. Almost all of this fall had already taken place in Asia and Europe before markets in the US had even opened. The reason was given as being "margin calls". No, not margin calls on Gold positions, margin calls on stock positions. Both Asian and European markets were reacting to big falls on the US stock market on the preivous day, notably a 277 point fall on the Dow. To quote one analyst - "Gold is being sold down to cover equities". So it was.
Gold is still comfortably above its 1980 highs and is still up more than $US 43 or 5.2 percent for the month so far. Compare that to global stock markets. As long as the belief remains that the desperate measures now being readied by politicians in the US (and elsewhere) can somehow "right" the present situation, more episodes of "Gold liquidation" to shore up paper investments is likely. But the point will inevitably come when that belief will be shaken - to the extent that big paper market sell offs will not drag down the Gold price, they will do the exact opposite.
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 has now spent two weeks well above its previous spot high of $US 850, with the spot close climbing above $US 900 for the first time ever this week.
With Gold still up nearly $US 100 since its close on December 20, the 10 and 20-day moving averages (MA) on the daily bar chart have once again turned up with the shorter-term average back above the longer-term one. After bouncing off its 10 day moving average two weeks ago, Gold widened the gap early this week before the January 16 sell off. As you can see, the spot future close is now flat lining it just below the 10-day MA.
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. The first spot future close above the $US 900 level came this week, on January 14.
On the point and figure chart, Gold broke above its fairly large distribution zone about $US 20 each side of the $US 800 level just before Christmas. The close above $US 842 on December 28 established a new and much steeper uptrend line on the chart. Now, Gold has gone on to reach decisive all time highs. As you can see, we got the downturn on the chart this week. Support is at the $US 870 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, 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. A month ago, we had yet another downturn on the chart when the Gold price fell $US 20 on December 13-14. And as we said here shortly before Christmas: "The BIG distribution zone is coming to a point. The price will have to break out of it soon. The only question is, in which direction?"
Now, that large distribution zone has definitely been broken - TO THE UPSIDE. And last week. EVERYTHING was broken to the upside with Gold reaching new all time highs in $US terms. Gold has now turned down from the $US 900 level it reached on January 14-15. We now await a clear indication of the first support point.