Again, we update the list showing the five highest spot future Gold closing prices of 2003 so far. Here is the list from last week - to September 19:
Here is that list brought up to the close on September 26:
Two things should immediately stand out on the list this week. First, the 2003 high close of February 4 has been knocked off the list. The new $US 387.50 high close for 2003 set on September 24 is $US 8.50 above that February 4 close. That is more than enough to declare that technically, Gold has now established a new UPLEG in its bull market. The second feature of the new list is that the closing price for Friday, September 26 is NOT on it. Comex spot future Gold closed at $US 380.80 on September 26, down $US 4.20 on the day and down $US 1.10 on the week.
There were lots of reasons given why Gold corrected over September 25-26. The US released another revision to their second quarter GDP, boosting it from 3.1% to 3.3%. Nobody bothered to mention that the sole source of this new rise in "growth" was yet more military spending. The revision did very little for the US Dollar (the $US index rose 0.07 points on Sept. 25 and 0.11 points on Sept. 26) and nothing at all for US stock markets which have just completed their worst week since the 2003 surge began back in March.
Then there was an announcement from the Swiss that they were indeed going to sell the Gold which they had already announced they were going to sell. Traditionally, they made no mention of who they were going to sell it to.
Comex Gold options expired on September 25 and "over the counter" options on September 26. This is the Gold version of the stock market's "triple witching hour" (double witching hour?). Suffice it to say that it is a time honoured practice of large futures players who hedge their primary position to not want their hedges (options) to expire in the money. They like to take out insurance, they don't like to have to pay for it.
On September 24, as Gold was closing in New York at a new 2003 high of $US 387.50, Mr Fred Poole, President of the Fed Reserve Bank of St Louis, expressed optimism about the future of the US economy. He even went so far as to charactarise the longer term prospects for the economy as being "superb(!??)". We don't know what Mr Poole has been smoking, but we do know that a $US 400 plus Gold price would not have been conducive to his forecasts.
As far as we here at The Privateer are concerned, the only relevant consideration about the Gold action of the past week is the simple fact that Gold has broken through to new multi year highs and thereby validated not only its $US bull market but another upleg in that $US bull market. This happens in all markets, the validation of a new upleg is often followed almost instantly by a pullback or even a correction, simply because many people who bought at the top of the previous upleg now have their first chance in a considerable period to sell and "get out even".
To illustrate this phenomenon, a poster on one of the Gold forums recently talked about his attempts to persuade friends and colleagues to at least consider adding Gold to their investment considerations. He went on to say that he was making some progress, one person he talked to stated that he would certainly consider Gold - "when he could sell his GM stock at the same price he had bought them". There is no more tenacious investor than one who is holding on in the hope of negating a loss. None of them ever consider the opportunity cost of having capital tied up in one place when it could be working to much better effect somewhere else.
In this context with Gold, we turn your attention back to the period before February 1996, when Gold set its high ($US 414 on a spot future closing basis) at the top of its last bull market. What preceded - and followed - that February 1996 high was a very tight three year trading range
For the two years from the beginning of 1994 to the end of 1995, Gold was trapped in an extraordinarily tight trading range between $US 375 and $US 395. It briefly climbed above $US 400 in early 1996, and then subsided back into that range. Gold did not break decisively below the $US 375 level until December 1996, three years after the trading range began.
As stated, the bottom of that trading range was at or about the $US 375 level - the top was at or about the $US 395 level. Back in February 2003, Gold trespassed into this trading range for the first time in six years. It even got near the high of the range when it poked its nose over the $US 390 level in intraday trading in Asia on February 5, 2003. Now, seven months later in September 2003, the old trading range is being challenged again. This time, the spot future Gold price has gone as high (so far) as $US 387.50 and the intraday high has been just below the $US 394 level.
To commit an anthropomorphism, markets have long memories. When a market remains within a tight range for a VERY long period of time, a LOT of investors take positions at prices within that range. When markets then fall below the range, those investors have the choice of selling or holding on. Invariably, most investors hold on - ALL the way down. In the case of Gold, investors who bought Gold anytime between the beginning of 1994 and the end of 1996 (with the exception of those who bought in Gold's short sojourn above $US 400 in early 1996) have watched prices plummet from just under $US 400 to just over $US 250 in about three years, and then take another three years to regain the levels at which they bought.
They had a very short-lived chance to "get out even" in February 2003 - Gold only closed above $US 375 on February 3 and 4. Now, they are having another chance to get out even. This time, spot future Gold has traded at or above $US 375 every day since September 5.
A three year trading range leaves an overhang of frustrated investors. Gold was in a trading range for three years - and nearly seven years later, Gold investors are finally being presented with an opportunity to get out even. For this simple reason alone, the $US Gold price faces considerable resistance all the way up to $US 400, and above that, up to the 1996 bull market closing high of $US 414 set in February 1996.
Please take a look at this chart. This is the most senior Gold chart we run, a monthly bar chart based on closing prices going back to the 1975-76 bear market lows of $US 102. Two things should stand out. First, the senior downtrend line anchored back at Gold's $US 850 all time high of January 1980 has been broken for well over a year, since March/April 2002 when Gold finally and decisively broke back above the $US 300 level. Second, the lastest bar on this chart - for September 2003 - is signalling what is on this chart the SECOND leg of a bull market.
Put these two facts together and you have a perfect technical recipe for a long and strong bull market. Looking at the monthly chart, a very good case could be made that the 21 years plus of chart action between mid 1982 and the present is merely a huge BASE being laid for the next great Gold bull - the successor of the two stage bull of 1971-74 and 1976-80.
The Gold bull re-validated itself this week. Next is the possibly heavy weather of breaking through the $US 400 and $US 414 levels. The hypothesis of a two decade plus basing period for $US Gold will be validated if and when Gold closes above $US 510 - the highest point it has reached (in January 1983) during that period.