Last Friday (June 6), Gold soared $US 23.50 to stop just below the $US 900 level. Then came Tuesday, June 10 and Gold plunged $US 26.90 while the US Dollar had its biggest one-day gain since last December. The catalyst was a statement by Fed Chief Bernanke that the risks to the US economy had "faded". Having looked high and low for any reasons given by Mr Bernanke to support this assertion, we have not found any.
Never mind, he said it so it must be true, right? And having taken this latest pronouncement straight (no chaser), the immediate reaction on Wall Street was that the series of rate cuts which has been going on since mid August of last year are now definitely finished, at least for now. There is even some rumbling about the possibility of an 0.25 percent RISE in official rates when the FOMC next meets on June 25. That is brand new this week, last week, the "betting" on such an event taking place was precisely zero.
Treasury yields are already soaring, especially at the longer-end, with most maturities hitting new 2008 highs this week. The Dollar is up, Gold and most other commodities (including oil) are down. Looking at oil, it jumped a huge $US 16 plus on June 5-6, in other words at the end of last week. This week, the oil price closed at $US 134.96. That is indeed a fall for the week, but the price is still more than $US 13 above where it was seven trading days ago. Gold, in contrast, is right back to where it was on June 5 - slightly below in fact.
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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Please note the performance of Gold in $US since March 2002 compared with the Dow. Yes, we know, Gold doesn't earn any interest. It has merely outperformed the Dow by a ratio of about 10.5 to 1 on a percentage basis.
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. At the end of April, the Dollar hit a new record low against the Euro mid week but did not quite fall to its March lows on the USDX. We had another bout of weakness has seen the USDX fall 1.07 points on June 5-6. But then came Mr Bernanke's benediction this week.
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. Six week later, that is still the correction low for Gold.
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. Last week, the shorter-term MA once more dipped below its longer-term counterpart. That remains the case this week as the big Gold price jump of June 6 was quickly cancelled out by the big fall on June 10..
For the first time since the big run up began last August, Gold closed for the week below its ten week moving average at the end of April. 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 spending most of the week trading below both 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. The price action is now outside the line. Potentially, we have a double bottom on this chart.
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.
Gold's big run up to $US 1000 started in September 2007 with the metal ending the year just below its all time highs in $US terms. It rose above the $US 800 level on November 2 and to all time highs above the $US 900 level on January 14. Then came mid March and $US 1000, and then came the correction.
Gold was back below $US 900 at $US 890 by April 1 and then bounced between $US 910 and 945 until late in the month when it dipped below $US 900 and fell to $US 855 by the end of the month. That remains the correction. As you can see, Gold is now bouncing between about $US 870 - 875 and $US 900, The latest entry on the chart is the downturn brought about by $US 26.90 drop on June 10.