The analysis below was written on April 25, when spot future Gold had jumped $US 3.80 to $US 308.10. We need add nothing to it, except for the fact that Gold followed up that $US 3.80 increase with another $US 3.50 jump on April 26.
April 25 - Spot Future Gold $US 308.10
April 26 - Spot Future Gold $US 311.60
Bull Market?
We think so.
"All that is left for a definitive $US Gold BULL market is for the price to continue up from here. A spot future close of $US 308 or higher would give final confirmation on this chart that Gold had distributed above its downtrend and broken out to the upside. That's all we need to CONFIRM the bull market."
(Gold - Bottom or Bull Market? Friday, April 19)
Here are four point and figure charts of Comex Gold updated to April 26.
Remember - these charts are all based on CLOSING spot future prices.
The downtrend line is anchored at Gold's February 1996 high of $US 414 (spot future close). As you can see, the chart has now distributed above this line for the first time and has now broken higher.
The downtrend line is anchored at Gold's "Washington Agreement" high(spot future close) of $US 314 in October 1999. As you can see, than line was broken through when Gold climbed above $US 300 in February this year. The chart has been distributing right around the $US 300 level for a month and has now broken out to a new 2002 high. You can also see the (green) uptrend line and a new steeper line formed by this breakthrough to $US 308.
As with the "plain" chart, the downtrend line is anchored at Gold's "Washington Agreement" high(spot future close) of $US 314 in October 1999. As you can see, than line was broken through when Gold climbed above $US 300 in February this year. The chart highlights Gold's struggle with the $US 300 level ever since the first breakthrough in February 2002.
Please refer to the lease rate charts. Ever since the last Bank of England Gold auction on March 5, and especially since Gold poked its head back above $US 300 on March 27, lease rates have been falling inexorably. On April 25, the same day that Comex Gold broke through to a new 2002 high close of $US 308.10, Gold lease rates on the long (one year) end plummeted BELOW the 1.0% level. The "cost" of borrowing Gold has never been cheaper, and still Gold continues to rise.
Please consider also what an "anomaly" falling Gold lease rates actually are. The upward pressure on conventional interest rates is becoming increasingly obvious. Many Central Banks, including the British, Canadian, and New Zealand banks, have already begun to raise official rates. There is growing expectation that the Australian Central Bank will soon follow suit. And there is growing trepidation on Wall Street that even the Fed is considering raising rates. After all, the U.S. Dollar is starting to suffer badly.
With physical Gold, the reward of insurance against financial upheaval ALWAYS outweighs the risk of price suppression. Citizens of nations around the world, most recently Argentine citizens, will attest to this. But in the past year in the U.S., for example, the reward of holding physical Gold has outpaced the reward from holding almost any other type of investment, most assuredly including the U.S. Dollar itself.
Holding paper claims to Gold on the futures market is fraught with risk, as is the holding of any other type of futures instrument. The risk comes not so much from the chance of price suppression, but from the LEVERAGE of the investment.
Holding Gold stocks has been very lucrative over the past year. But never forget that Gold stocks are NOT Gold. Never forget too that Gold stocks are about the only class of investment in the stock market (oil stocks also qualify to an extent) that the financial powers that be do NOT want to see prosper.
Please also consider the fact that Financial Ministers and Central Bankers, who got together last weekend in Washington DC for the G-7/IMF/World Bank meeting, are well aware of Gold's inexorable rise. The mere fact that $US Gold has spent the past entire month fighting with the $US 300 barrier is testament to the importance of this barrier. There can be no doubt that efforts will continue to be made, as they have been made ever since late March, to force Gold back below $US 300 and keep it there.
Gold is now far enough above $US 300 to suffer a reasonable "correction" without going below its recent lows of $US 298.80 (spot future close). It has established a solid uptrend. It has been rising very slowly for more than a year. Physical demand is spiralling higher at the same time that newly-mined production (especially from South African mines) is falling.
There is always the chance of desperate measures being taken by the financial powers that be. We are reminded of Gold's $US 40 intraday price swing on the first day of the Gulf Air War on January 17, 1991. But that is a threat that will always be with us. For a year, the "risk" of holding Gold has been far less than the risk of NOT holding it, and now Gold is breaking through the $US 300 ceiling which has held it back for nearly five years. The uptrend is established and Gold has now spent a month at or above the $US 300 level.
At some point, the price suppression of Gold had to slip. It is surely slipping now. Technically, there is no remaining doubt that we can call $US Gold in a BULL market. Politically, Gold is public enemy number one, but it has been that for decades, and was that during its great run up of the 1970s and its bull market of the mid 1980s and early 1990s. Given the global financial and especially DEBT situation, Gold is WAY overdue for another bull market. We think this is the beginning of it.