At its $US 1187 close on November 25, the $US Gold price had soared to a point where it was more than $US 110 above its 10-week moving average (MA) and more than $US 150 above its 20-week MA. These "gaps" are very large and a correction was in the cards.
Gold This Week - November 27, 2009)
On December 3, the day when spot future gold hit its high close of $US 1218.30, the gap between the Gold price and the had widened further. Gold was was $US 123 above its 10-week moving average and a whopping $US 184 above its 20-week MA. Then came the almost $US 50 fall on December 4. And this week, Gold's correction has kept going - as you can see on the chart above. At its close of $US 1119.90 on December 11, Gold is less than $US 20 above its 10-week MA and about $US 60 above its 20-week MA.
There has never been a time since Gold and the US Dollar were finally parted in 1971 when Gold has not come down in a correction faster than it went up. This correction is no exception. It took Gold From November 13 to December 3 to climb from (just under) $US 1120 to (just under) $US 1220. It has taken a mere six trading days - December 4-11 - for it to give that $US 100 rise back again.
And, of course, we do not know whether Gold has more to give back in coming days.
The situation is delicious. Gold began its precipitous fall last Friday on news that US unemployment had fallen from 10.2 percent to 10.0 percent in November. It continued this week on a string of US government-provided statistics which were all above what is so archly called "market expectations". The fact is, of course, that "market expectations" are designed to be exceeded and they usually are.
Then there was the ratings downgrade of Greece and the lowering of the ratings "outlook" for Spain and Portugal. There is no denying that all three of these nations are facing dire financial problems with large budget deficits and whopping public sector debt. There is also no denying the fact that none of these nations are in the G-20 or have deficits or debt levels which greatly exceed the nations which are - notably the US and especially the UK.
But something must be done to try to "prove" that the ratings agencies - discredited throughout the GFC so far - are "on the ball". And something must be done to push investors away from "risk" and towards "safety"
Next week, the FOMC meets on December 15-16. It just so happens that December 16 marks the first anniversary of the Fed's decision to lower its controlling funds rate to zero. Even more interesting, the US House of Representatives has decided to tie the next Treasury debt limit increase to a defence bill which will be voted on next week. Another debt limit increase (and it is URGENTLY necessary) will be the FOURTH in the past 18 months.
Finally, the US mint has run out of Gold with which to mint its bullion coinage. Last week, they announced the cessation of the minting of the most popular one ounce "Eagle" and "Buffalo" coins. That led to a huge run on the "fractional" coins (0.5, 0.25 and 0.10 oz). This week, the Mint announced that their stocks of 0.10 oz coins were "depleted" and their stock of 0.25 and 0.50 oz coins were "very limited".
Clearly, "supply and demand" for physical Gold do not weigh heavily on the paper Gold futures markets in the US. Nor is there any reason why they should, since transactions in this market are not done by means of physical Gold. Anyone into futures Gold contracts on margin had a VERY bad week this week. For most physical Gold holders, this week merely provided an opportunity to buy at a bargain price
(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 the $US 1000 level. But it did NOT break through the $US 1000 barrier. Until this week, what had been traced out on this chart is the right shoulder of a gigantic "reverse" head and shoulders formation. But on September 16, spot future Gold CLOSED at $US 1020.20. That breaks decisively above the $US 1000 "double top" on this chart and revalidates the entire bull market - from the bottom. Late in September, had the downturn on the chart, only to see Gold burst above its September 16 high to put the final re-validation on the entire $US bull market in early October. The correction this week, which has given up about half the gainse since then, does not change that fact.
In February 2009, spot future Gold closed above the $US 1000 level for the second time. While the close did not quite equal that of March 2008 in $US terms, it set new all time highs in terms of many other currencies - the Yen being an exception. That was because of the recovery of the US Dollar which had taken place since March 2008.
On September 11, 2009, spot future Gold closed above the $US 1000 level for the third time. It has remained above the $US 1000 level continually since the end of September and rose more than $US 200 almost straight up before the December 4 correction. Now, a week later, half that rise has been given back.
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Gold priced in Japanese Yen has joined $US Gold in the plus column. But after getting into the plus column last week as the $US Gold price peaked, the Euro Gold price has slipped back into the "red" this week. The most "extreme" example remains the Aussie Dollar Gold price. at current (December 11, 2009) exchange rates, it would take a Gold price of $US 1442.70 for the Aussie Gold price to equal the all time high it set on February 20, 2009.