In what is an all but unprecedented event, Gold has soared almost $US 50 straight up in the immediate aftermath of an FOMC meeting at which the Fed did what (almost) everybody expected them to do - precisely nothing. For the first time since the August 7, 2007 FOMC meeting the Fed did NOT cut rates. Nor did they raise them. They merely sat on their hands.
But it was not the Fed's lack of action that galvanised financial markets, it was the amazingly fatuous "reasons" they gave for their decision not to decide in the official press release. "Recent information indicates that overall economic activity continues to expand." Headless chickens are well known to expand their activity amazingly, for a short while. But any type of purposeful activity? We think not.
"Financial markets remain under considerable stress". Actually, financial markets were, in the main, not doing much of anything until the FOMC meeting and the attendent press release came out. Then the stress really did make itself felt. Oil prices topped $140 (on a closing basis) for the first time. Global stock markets, led by the US indices, plummeted. The US Dollar turned south again. And, of course, Gold woke up with a vengeance. In short, everything that Mr Bernanke and crew have been desperately seeking to avoid for months blew up in their faces at once. The signal could not have been clearer, and it was heeded. The Fed is helpless.
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 almost 24 to 1 on a percentage basis since early 2002.
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 72.67, the USDX is once again getting uncomfortably close to those March 2008 all time 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. On June 25, Gold hovered about $US 30 above that level. By the end of the week, it was up a further $US 50.
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. Three weeks ago, the shorter-term MA once more dipped below its longer-term counterpart. And this week, the crossover occurred yet again with shorter-term MA back above its longer term counterpart and the Gold price comfortably above both.
On the weekly chart, the 10-week MA moved below its 20-week counterpart in mid May for the first time since the beginning of the "credit squeeze" last August. This week, for the first time since Gold's precipitous retreat from the $US 1000 level in mid March, the spot future closing price on the chart is above 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. Lhis week, the chart established a double bottom from which the price rose to the top of its recent trading range. It has risen well above that trading range 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.
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.
For the past month, Gold has been tracing out a trading range between $US 870 and a bit above $US 900. You can see this on the chart and as the upturns and downturns came closer and closer together. This week, the trading range was decisively penetrated on the upside with the $US 49 surge in Gold on June 26 and 27.