As already stated ...the bottom is IN. What we need now is a confirmed uptrend. What is necessary for any uptrend to be confirmed is simple. The price must correct to a level HIGHER than its previous low, and must then go on to a HIGHER lever than the one it reached in the move before the correction.
(Gold Last Week - May 18)
OK, here's the correction. Spot future Gold hit an intraday high of $US 293.50 on May 21 and closed for the week on May 25 at $US 278.20. So far, Spot future Gold's high on a CLOSING basis remains the $US 287.80 level it reached last Friday (May 18). We have the correction, now let's see where support comes in and more important, let's see if the subsequent upmove can beat the one that topped out on May 21.
Now - on to the action.
What most people who were looking with increasing dismay at the Gold price earlier this week were NOT noticing was the action on the U.S. Dollar. Over the first three days of the week, May 21-23, the spot future Gold close fell from $US 287.80 to $US 284.00. That's a fall of 0.98%. Over those same three days, the $US index ROSE from 116.46 to 118.41 - up 1.67%. That's right, the U.S. Dollar was rising against all other currencies (except the Yen) FASTER than Gold was falling against the Dollar. In fact, on a spot future Comex closing price basis, Gold was rising against all currencies EXCEPT the U.S. Dollar and the Yen until Thursday, May 24.
Now, what happened on May 24? What happened was that Gold started going UP again - in terms of ALL currencies. It rose in Asia. It rose in Europe where the London PM fix was $US 286.05 - $US 2.60 higher than the AM fix of $US 283.45. Then, in early trading in New York, spot future Gold reached $US 287.30 - only $US 0.50 below where it had closed at the top of its $US 13.80 explosion of the previous Friday (May 18).
This was getting SERIOUS! So a news story flashed across the wires that Russian Prime Minister Putin was going to sell Gold (and diamonds) to help the victims of the Siberian floods. Presto, Gold lost about $US 12 in about as many minutes. Mr Putin has since stated that he was "misinterpreted". It has also been gently pointed out that Russia has an agreement with the IMF NOT to sell its Gold. No matter, mission accomplished. Gold was once more under control.
And so it has remained as the week drew to a close. Now, there is a long weekend (Memorial Day) before the U.S. markets get back into action on May 29
On Thursday, May 24, the day that the "Russian Sale" story knocked the wind out of the Gold price, the U.S. Dollar index closed up 0.04 points on the day at 118.45. This EXACTLY matches its (multi-year) high for 2000, set on November 24. The next day, Friday May 25, the U.S. Dollar index closed down 0.19 points at 118.26.
Don't forget, since the U.S. Dollar index hit that November 2000 high, the Fed has cut U.S. rates by 250 basis points (2.50%) from 6.50% to 4.00%. On top of that, the Fed has been pouring money into the system at much faster rates than they did in the lead up to Y2K or in the leadup to the 1987 stock market crash. U.S. MZM (Money of Zero Maturity) is up 25% since February.
And this week Treasury bonds fell back below the 100 price level (i.e. yields rose) for the first time since last November. That's right, bond prices are falling as fast as the Dollar is rising. Last time that happened was late last year, the result was a swan dive on the Dollar. Now, the situation is set up perfectly for a repeat performance.
But this time, there are two BIG differences. U.S. rates have ALREADY been slashed to the bone, another Dollar slump would put intense pressure on them to go UP. And this time, Gold in $US terms has suddenly awakened, and has been contained this week only by the most blatant news manipulation.
The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
A "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP.
The chart of $US Gold is above. Here are the charts of Gold in the other currencies we cover.
Gold in Yen
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
All of these charts look better than they did last week. All of them (except the $US chart) have legitimate uptrends on them.
It may well be exasperating to witness the lemming-like rush out of Gold caused by the "quote" from Mr Putin (see the report below). Some people will swallow ANYTHING, you may well say. Well it's true, some people will. But if you think the story about Russian Gold sales was ridiculous, consider the latest pronouncement from Mr Greenspan. Mr Greenspan would have you believe that "inflation" is not a threat in the U.S. right now. He said that in his latest speech - on the state of the U.S. economy - on May 25.
Consider this: Would Mr Greenspan have DARED to make this breathtaking claim if the $US price of Gold had not subsided most conveniently over the preceding two days? Are you beginning to see the stakes involved? The entire U.S. and world economy, most emphatically including Wall Street, is counting on more U.S. rate cuts. Mr Greenspan MUST maintain the fiction that "inflation" in the U.S. is no threat. If he can't, then the expectation of still lower U.S. rates will evaporate - just as it was starting to do when Gold leaped $US 13.80 on May 18. NOW - do you see the stakes involved?
The days of the Gold "elbbub" are numbered. As we said at the start of this commentary, we've got the correction. Now, let's see where we go from here.
As you may or may not be aware, there have recently been some very bad floods in the Siberian region of Russia. Floods occur every spring in this region, but this year, the property damage has been particularly severe. According to reports, up to 17,000 people have abandoned their homes because of these floods.
The news of these floods has been out for a while now, but up until today, no one knew how the Russian government intended to address the problem.
Now - we do.
At around noon (US EDT), Russian Prime Minister Vladimir Putin was quoted as saying that his government would sell Gold (and diamonds) if: "...a clear scheme is provided to me, intended to send help to people now in the streets."
Here are the London fixes for Gold on May 24:
AM Fix: $US 283.45
PM Fix: $US 286.05
In early trading in New York, spot future Gold had moved to $US 287.30 (it closed on May 23 at $US 284.00). Within minutes of the quote attributed to Mr Putin, the spot future price plunged about $US 12. By the close of trading on May 24, spot future Gold had settled at $US 279.40 - down $US 4.60 on the day and about $US 8.00 below the level it had reached before the quote from Mr Putin became known. By the way, all the other precious metals trading on Comex were up on the day.
You will note the quotes around the word "trading" in the heading above. Here's a quote attributed to Mr Andy Smith of Mitsui: "the news from Russia had served as a good excuse for funds, which went long during this week's blistering rally, to restructure their positions."
On the Comex, the "position" had just switched from being predominantly short to being predominantly long for the first time since last summer. Clearly, a "restructuring" was deemed necessary.
Here's what no one yet knows about Mr Putin's intentions:
Of course, the answer to that last question is clear. It should be fairly obvious that the announcement was made for the express purpose of reining in the Gold price. It should be equally obvious that things must be getting a bit desperate out there to resort to so transparent a strategem to accomplish this.
Certainly - just read the introduction to this page.
But please consider the U.S. stock markets. So far this year, the Fed has lowered interest rates by 250 basis points (from 6.5% to 4.0%). On top of that, the U.S. MZM (Money of Zero Maturity - or - "spend this right away money") has increased by 25% over the past three months. No, it hasn't increased by 25% on an "annualised" basis, it has increased by 25% - in thirteen weeks.
This isn't market manipulation? Of course it is, and of the most transparent kind. But since the Fed has gotten away with it, so far anyway, the people in charge of the U.S. financial system obviously think that no one will see what they are doing, no matter how obvious it is, because they don't want to see it.
We'll see. The Gold War has been declared yet again. Stay tuned.
FLASH: May 24 - 6PM US EDT - Apparently, now the Gold sale is to be "delayed".