The week just ended saw the announcement of the biggest month on month rise in official US price inflation in 26 years with the announcement of a 5.1 CPI figure for June. It also saw the biggest nominal weekly fall in the $US oil price. On top of that, there was a big turnaround on Wall Street on the back of a huge short cover rally in the wake of the SEC's decision to ban "naked" shorting on Fannie and Freddie etc.
Treasurer Paulson's bailout plan is still in Congress, where it is now expected to be passed by the end of next week. Mr Paulson is assuring the rapidly dwindling number of people - both inside and outside the US - who still take him seriously that he is going to put the GSEs (Fannie and Freddie) back on their feet without burdening the US taxpayer. One of the funniest aspects of this whole performance is the fact that the major "players" are all managing to keep straight faces while they "discuss" this.
Gold hit a post March 2008 high spot future close of $US 978.70 on July 15, on the day when the Dow closed below the 11000 level for the first time in two years. Then came the Wall Street turnaround and a big fall in the $US oil price. Gold duly gave up all its early week gains to close on July 18 at $US 958 - down $US 2.60 from the week before.
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 21 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 72.42, the USDX is just over one point above its all time March low and almost unchanged on the week just ended.
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 July 15, Gold had gained another $US 100. At its present level just under $US 960, Gold has now recovered about 70 percent of its March/May correction.
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). By late May, that fall had the inevitable consequence of pushing shorter-term 10 day moving average back below its longer-term 20 day counterpart. We have had several crossovers since then, the most recent of which took place three weeks ago with the shorter-term MA once again above its longer-term counterpart. That situation remains intact, with the spot future price coming back to just touch the shorter-term MA on its intraday low this week.
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 marks the fourth week in a row where the spot future God price has closed above both moving averages since Gold's precipitous retreat from the $US 1000 level in mid March. The shorter-term MA is not rapidly closing the "gap" on its longer-term counterpart.
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 analyis). 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. As you can see on the chart, Gold has broken above its recent $US 870-900 trading range over the past month. We now have a small pullback 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 analyis) 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.
Between late May and late June, Gold was 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. Two weeks ago, the trading range was decisively penetrated on the upside with the $US 49 surge in Gold on June 26 and 27. The chart has been working higher throughout July so far, with the latest move being a downturn as Gold dropped back below the $Us 960 level on July 18.