As you can see on the weekly bar chart below, Gold had a comparatively good week this week, gaining a bit more than $US 30 and closing above the $US 900 for the first time since late last month. Not much more than a week ago, Mr Bernanke was telling the world that the risks to the US economy had "faded". That didn't last very long. On June 20, Treasury Secretary Paulson urged the US Congress to give the Fed the sweeping new powers he said it needed to protect the "integrity" of the nation's financial system.
So much for the risks having "faded". No high government official demands sweeping new powers to address a problem that is going away. They do so when they have good reason to expect the problem to be getting worse in the near future. We have much more to say about Mr Paulson's "request" in our main Gold This Week commentary.
Gold's rise of about 3.4 percent this week could not be blamed on the $US oil price, which was marginally down on the week. Nor could it be blamed on the US Dollar, which did fall but by just over 1.0 percent. Could it have something to do with the contrast between Mr Bernanke's "soothing" comments last week and Mr Paulson's call for action this week? We think it might.
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 14.5 to 1 on a percentage basis.
The USDX has not closed above the vital 80.00 level since September 6 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. At its present level of 73.38, the USDX is about two points above that all time low set in March.
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 (MA). 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. Two weeks ago, the shorter-term MA once more dipped below its longer-term counterpart. That remains the case this week. The main change on the daily chart is that the Gold price has once again climbed above 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 (MA) 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. However, the Gold price has now moved back above the shorter-term (10 week) MA.
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. this week, the chart established a double bottom from which the price has now risen above its recent trading range.
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. This week, Gold traversed that whole range once again and closed above the $US 900 level - for the first time since late May - on June 19 and 20.