Take another look at the Gold chart above. It is a daily bar chart of spot future Comex Gold. What we are looking at on the chart this week are the three moving averages - and in particular the longest-term 200-day (40 week) moving average - the green line on the chart
Moving averages are simple indicators. These averages are calculated on the daily close of the spot future Gold price. With each new entry on, say, a 25-day MA, a new average is calculated on the basis of the past 25 trading days. Today's close is included and the close of 26 days ago is dropped from this calculation. The longer-term the average, the more any violent daily price movements are smoothed out and the more stable and indicative the trend shown by the average becomes.
Here are the relevant levels on the three (25, 50, and 200-day) moving average shown on the chart:
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As you can see from this table, neither the 25 nor the 50-day MA's has made it back to the high they set last year in the wake of Gold's first penetration of the $US 1000 level in March 2008. The situation is different with the 200-day moving average though. This week, the 200-day MA exceeded its old all time high set in October last year on August 19. By the close of trade for the week on August 21, the 200-day MA had gone on to climb above the $US 900 level for the first time ever.
The new high on the long-term 200-day moving average this week is a strong indicator that the long "sideways" movement of $US Gold since it first hit the $US 1000 level nearly 18 months ago is coming to an end. You can see that sideways action in the huge "reverse head and shoulders" formation on the point and figure chart below.
So, we have a beautiful example of a "reverse head and shoulders" formation on the chart below. The previous similar formation on the chart was over the period between May 2006 and September/October 2007. Gold then bolted all the way up to the $US 1000 level within six months. The present reverse head and shoulders is HUGELY more pronounced than the last one was.
Reverse head and shoulders formations are almost always resolved by the chart breaking ABOVE the right shoulder. A strong signal that this may be getting close is the fact that Gold's 200-day moving average has climbed above its 2008 all time highs this week. The US Dollar index dipped back below the 80.00 level - it's "floor" for 30 years - over a month ago on July 15 and has not climbed back above it since. The pressure is growing.
One final point about the Gold point and figure chart below. Please note the date on the chart when Gold hit the low from which its present US Dollar bull market has grown. That date is August 25, 1999. Next week, we hit the tenth anniversary of that low. It might be quite a party - if not on the day then not too long afterwards. Let's wait and see.
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold retreated to just below the $US 900 level in three moves down. What is being traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 was broken early in April. Over the month of April, a tighter range between $US 870-910 was established. Then, Gold went straight up on this chart for six weeks - from the start of May until early June. Since then, the chart has been going sideways with the latest downturn - to below the $US 940 level - taking place this week on August 17. For an upturn on this chart, a spot future Gold close of $US 965 or higher is required.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. On February 20, those highs were taken out when Gold hit $US 1000. They were not taken out when Gold hit $US 1000 again in May. Right now, Gold in US Dollar terms is much closer (about 5 percent) to its all time highs than it is in terms of any other major currency..
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