For a month after 9/11, Gold flirted with $US 290. For another month, it flirted with $US 280. Now, it has fallen below $US 280 and is flirting with $US 275. On November 16, spot future Gold closed at $US 274.90, its lowest level since the $US 272.30 it was at on the day before the terrorist attack on New York and Washington.
While Gold has been subsiding, the U.S. markets have been recovering. Last week, the Dow made up all of its post 9/11 losses. This week, the index has climbed to within 130 points of the 10000 level. As long as the U.S. stock markets and the U.S. Dollar are holding up, which they still are, Gold is being consigned to the investment backwaters.
Take a look at the dotted lines on the weekly bar chart and the point and figure charts to the left. These lines show the uptrend which $US Gold has been in since its 2001 bottom in April. As you can see, the present price action is pushing the Gold price down towards these lines, both of which are still perfectly intact.
In essence, Gold is nearing the bottom of an upchannel with the support line drawn through the April and July 2001 bottoms. On both the weekly bar chart and the point and figure chart, the price will reach these uptrend lines at or about the $US 272.30 level - spot future Gold's pre 9/11 level. That is why we have been saying for some weeks that this is a MOST important level, and that the 2001 uptrend will remain intact as long as Gold does not fell BELOW this level.
The other chart to take note of in this context is the long-term $US 5 x 3 point and figure chart. When spot future Gold closed below $US 275 - as it did on November 16 - this chart turned DOWN. That downturn reverses the upturn which was a result of Gold's spike in reaction to 9/11. Gold is back in the bottle.
It will remain there as long as there is perceived upside left in the U.S. paper markets, notably the U.S. stock markets. The most important aspect of trading this week was the CRASH DIVE in U.S. Treasury debt, right across the yield curve. We have MUCH more to say about this in our main Gold Commentary this week.
Some of the capital freed up from the bond sell-off is going into stocks. Some is going into U.S. corporate bonds. The capital is NOT exiting the U.S. Dollar, which continued to rise this week. Investors around the world may be cautious when it comes to travelling, and getting on jet planes in particular, but they have thrown caution away when it comes to looking for investment returns. They are diving back into stocks and into the "riskier" (with a commensurately higher yield) forms of U.S. Dollar denominated debt paper. They are abandoning Treasuries for corporates.
Even with the Fed continuing to pour liquidity into the system and now with investors liquidating Treasuries, the U.S. stock market advance is slowing. The time to get REALLY alert is when the present U.S. Treasury sell-off STOPS. When that happens, another source of liquidity will have to be found, and it's hard to see where it will come from.
Meanwhile, Gold is nearly at the bottom of its uptrend. Support "should" be found between present levels and the pre 9/11 levels of $US 272-73. Will it? All we can do is wait - and watch.