A short four day week this week in the UK and the US and with it, another big retreat on precious metals prices on enormous volumes in the paper markets for same. Here we had another bid for "business as usual" by the financial powers that be as both their influence and their ability to "shape" the way Americans look at their economy is slowly ebbing away.
On the initial estimates, Americans drove less miles this Memorial Day weekend than in any year since - 1942. That was, of course, the first full year of US participation in WW II. The more strident the claims from Washington and Wall Street that the US economy is "fundamentally sound", the more quickly the tattered remains of their "credibility" are eroding.
Americans are swiftly discovering that they can no longer afford to be the chief driver of US economic "growth" through their spending on consumption. Those who can are now saving. Those who can't are fighting a desperate rear guard action to service their debts for a little while longer. But almost everybody is cutting spending. Everybody, that is, except Washington and Wall Street.
The difference is that in Washington and on Wall Street, they just print the stuff. On Main Street, it still has to be earned.
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, the USDX fell again - to 71.97, only to recover almost a full point this week to close the month just below the 73.00 level, still uncomfortably close to its mid March lows.
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. By the end of last week with Gold closing at $US 925.80, almost exactly half of that correction had been retraced. And even with the fall this week, $US Gold still managed a rise over the month.
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. Gold then gained $US 60 in less than two weeks only to give more than half of that back this week. The shorter-term MA once again crossed well above its longer-term counterpart last week. It remains above it this week, but the price is now back below both MAs.
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. In mid May, the 10-week MA 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 with the Gold price falling back below both 10 and 20 week 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. The first three weeks of May saw a recovery as Gold broke back well above the downtrend line established since the fall from the $US 1000 level in mid March. Please note that it came right back to that line this week before the upturn on May 30.
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 has broken substantially above $US 900 and retraced half of its mid March to late April fall. Then came the downturn to end the month of May.