Last week, we reported to the change in attitude in the lead up to the FOMC meeting at the end of April. From expecting eternally lower official US interest rates, the "party line" was changed to claiming that the Fed has now done "enough" to get credit moving again so now they can shift their aim to (price) inflation.
This week, the US government did its bit in the war against US (price) inflation. The Labor Department reported its figures for the April US CPI on May 14. The number was a truly laughable 0.2 percent. The "core" rate was 1.0 percent and an even more laughable annualised figure of 1.2 percent over the previous three months.
Gold suffered a relapse early in the week, falling nearly $US 20 to $US 866 on the day that the latest US CPI figures were released. They proved somewhat indigestible, though. On May 15-16, Gold stormed up nearly $US 34.00 to close the week at $US 899.90 (intraday high $US 904.50), its highest spot closing level since April 23.
In fact, Gold trading in the US on May 16 was "gap up" on all the daily bar charts - see the daily chart below. By the time that trading opened in New York on the day, Gold was already $US 16.00 higher than its closing level on the previous day. That's something we have not seen for a while.
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 last year. It has continued to fall since then and accelerated down in the first half of March. On Monday, March 17, the USDX hit a nadir of 71.30. Then came the turnaround, almost two full points in three trading days. Three weeks ago, the Dollar hit a new record low against the Euro mid week but did not quite fall to its March lows on the USDX. Last week, the Dollar rose as the Fed cut rates. This week, the Dollar held onto those gains, until a big Gold and oil price rise on May 16 pushed the index down 0.53 points.
Gold has now spent most of 2008 above its previous spot high of $US 850 and only dipped back down below the $US 900 level on two brief occasions between closing at $US 900 on January 14 and exceeding the $US 1000 level in mid March. Then came the big correction - down just over 15 percent to 850 by the end of April. At its present level of $US 899.90, just under one-third of that correction has now been retraced.
As you can see on the daily chart, the Gold price plummeted in mid March, falling well below both 10 and 20-day moving averages. A little over a month ago, that fall had the inevitable consequence of pushing shorter-term 10 day moving average back below its longer-term 20 day counterpart. Then a rise to $US 945 actually pushed the 10 day MA back above its 20 day counterpart. But that didn't last long as Gold fell to $US 850 by the end of April. This week, you can see the "gap up" day on May 16 taking Gold comfortably above both moving averages. You can also see the shorter-term MA curving up sharply behind the Gold price.
For the first time since the big run up began last August, Gold closed for the week below its ten week moving average a month ago. Gold dipped below its longer-term 20 week moving average when it dipped below $US 900 on April 1 and did so again with fall to just above the $US 850 level at the end of April. Gold has rebounded this week but remains below both MAs. And now, the 10-week MA has moved below its 20-week counterpart for the first time since the beginning of the "credit squeeze" last August. Inevitable given the 15 percent correction between mid March and the end of April.
On the point and figure chart, the very steep uptrend line was sliced clean through a month ago. For a better view of this, please see this chart (link appears here in original analysis). Three weeks ago, the price made it to $US 945 on a spot future closing basis ($Us 950 intraday) before the big sell-off over the rest of April dragging Gold down to $US 852 (on the chart) before the upturn on May 2. That upturn continued this week.
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 (link appears here in original analysis) 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 run up to $US 1000, which started in September, 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. 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?"
In late January, EVERYTHING was broken to the upside with Gold reaching new all time highs in $US terms. Gold then surged toward the $US 1000 level and reached it early in mid March before the big sell-off, which caused a downturn all the way down to the top of the previous distribution zone. When Gold closed up $US 14.20 to $US 949.20 on March 26 we got the upturn on the chart. That was almost immediately followed by another downsurge back below $US 900 to $US 890 on April 1. Gold then bounced between $US 910 and 945 until late April, when it dipped below $US 900 again, falling to $US 855 by the end of the month. Last week came the upturn. And this week Gold all but regained the $US 900 level.