Last week, there was an abrupt fall $US 20.60 fall in the Gold price on January 16 as "margin calls" were sent out on stock positions all over the world. This week, while the US was closed for the Martin Luther King holiday on January 21, these margin calls intensified as Asian and European stock markets plummeted. Gold actually traded all the way down to its old January 1980 $US 850 high intraday. But then the US markets clanked back into gear on January 22, greeted by an 0.75 percent rate cut by the Fed, and Gold turned right back up again.
By the end of the week, Gold was once again setting all time highs in $US terms. After reaching intraday highs up around the $US 925 level on January 25 in Asia and Europe, the spot future close in New York was $US 910.70.
Gold is now at all time highs. By January 21, almost all of the major global stock markets were down by more than 20 percent from their bull market highs, most of them set within the past three months. By definition, a fall of more than 20 percent from a major bull market high marks the transition from bull to BEAR market. The transition has now been made, almost everywhere. The big bounce which took place after the Fed's rate cut doesn't change that.
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 three weeks well above its previous spot high of $US 850, although the price did dip to that level intraday in Europe and Asia this week. That didn't last, and now Gold is again establishing all time highs in terms of most major currencies.
Spot future Gold closed below the $US 800 level as recently as December 20. Now, the spot future close has climbed to $US 910. The 10 and 20-day moving averages (MA) on the daily bar chart are climbing with the shorter-term average back above the longer-term one. As you can see, Gold dipped below the 20 day MA this week in intraday trade but never closed below it. And by the end of the week, the spot future close was again well above both MAs.
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 on January 14. As of the close on January 25, the spot future Gold close is $US 70 above its shorter-term (10 week) moving average on this chart.
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. Gold has gone on to reach new all time highs this week on the chart. The next step is to consolidate above the $US 900 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. Two weeks ago. EVERYTHING was broken to the upside with Gold reaching new all time highs in $US terms. And now, Gold has distributed ABOVE its former all time high and gone on to set yet new highs above $US 900. Please note that any spot future close above $US 915 will now give us another big breakaway gap, just like the one we had back in October 2007 (see above).
If we get that, the next psychological resistance point is $US 1000 Gold.