Well, the tax rebate payments have started to wend their way to US consumers. Many of these are in the form of direct deposits in taxpayers' bank accounts but most are still going out in the mail. This process began on May 16 and will last up until July 11. The individual sums are derisory - from $US 300 to $US 600. Yet this is the "stimulus" which is supposed to free up the "frozen" lending system and get the US economy "growing" again on the back, not of production, but of consumption.
The initial portents do NOT look good. US consumers have no savings and have run out of borrowing avenues. They are conspicuously cutting back on their consumption all over the US. On Wall Street and in Washington, the fear of a BIG drop off in consumer spending is palpable. Hence the very bad week this week on Wall Street. Hence the almost equally bad week for the US Dollar. And hence a good week for Gold, as the metal first burst back above $US 900 and then consolidated those gains as the week progressed.
Last week, Gold surged off a low of $US 866 on the day that the latest US CPI figures were released, to be greeted with a mixture of open-mouthed astonishment and contemptuous derision. This week Gold surged to just over $US 930 in intraday trading on May 21 before falling back on May 22 and then recovering to close the week at $US 925.90 - spot future close - on May 23. Between March 17 and late April, Gold fell from $US 1004 to $US 851. At its current close, just about exactly half of those losses have now been recovered.
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. A month 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, a big Gold and oil price rise on May 16 pushed the index down 0.53 points on May 16. This week, that fall has continued with the USDX falling a full point - to 71.97.
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 925.80, almost exactly half 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. With Gold now having gained $US almost $US 60 in less than two weeks, the shorter-term MA once again crossed well above its longer-term counterpart this week.
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. Last week, the 10-week MA has moved below its 20-week counterpart for the first time since the beginning of the "credit squeeze" last August. That remains the case this week. The difference on the chart though, is that the Gold price has closed for the week back above both those moving averages.
On the point and figure chart, the very steep uptrend line was sliced clean through in late March. For a better view of this, please see this chart (link appears here in original analysis). Gold fell as low as $US 852 - on the chart - in late April. May has seen a recovery as Gold has now broken back well above the downtrend line established since the fall from the $US 1000 level in mid March.
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, Gold all but regained the $US 900 level. And this week Gold has broken substantially above $US 900, now having retraced half of its mid March to late April fall.