Past Gold Bottoms: 1976, 1982, 1985, 1993
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Daily Bar Chart
10 and 20 day MA 
Weekly Bar Chart 20 and 40 week MA 
$US 2.00 x 3 P&F Chart Based on Closing prices 
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We could call this "a tale of two bailouts". Last week was the first full week of the Treasury's takeover (read nationalisation) of Fannie and Freddie, Gold broke down through its previous correction and just kept on going. On September 11, the spot future close was all the way down to $US 745.50, the lowest such close since October 2007. On the same day, the USDX - the trade weighted US Dollar index - closed above the 80 level for the first time since early September last year, barely a month into the global credit crunch which hit last August.
That was last week. This week was the second biggest weekly rise in the history of "free market" (post August 1971) Gold in US Dollar terms. It was also the week when President Bush, flanked by Treasury Secretary Paulson and Fed Chairman Bernanke, announced the biggest financial bailout in US (and probably world) history. Gold was up just over $US 100 on the week, despite a $US 32.30 fall on September 19, the day the bailout was announced. The charts are wild, to say the least
We said here last week: "Could this be the beginning of the end of the big US Dollar rally which was sparked in mid July by the passage of the US Housing Bill (AKA the Fannie/Freddie bailout plan) and the raising of the Treasury's debt limit by $US 800 Billion? One day does not a trend make, but this was a HUGE reversal in the US Dollar."
Certainly looks like it, wouldn't you say? The fantastic gyrations on markets this week were all encompassing. The desperation of the financial powers that be have ratcheted up to a new high.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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Please note the performance of Gold in $US since March 2002 compared with the Dow. Yes, we know, Gold doesn't earn any interest. It has merely outperformed the Dow by a ratio of about 20 to 1 on a percentage basis since early 2002.
The USDX had not closed above the vital 80.00 level since September 6 last year. On Monday, March 17 (as Gold topped $US 1000) the USDX hit a nadir of 71.30. Then came the turnaround, almost two full points in three trading days. At the end of April, the Dollar hit a new record low against the Euro mid week but did not quite fall to its March lows on the USDX. A HUGE Dollar rally hit in mid July, including the biggest one-day gain since 2005 on August 8, up 1.29 points or 1.73% on the day. On September 11, the USDX got back above the 80 level for the first time in a year, closing at 80.15. And This week has come the mother of all bailouts, with the requisite (downward) effect on the USDX.
A little over a month ago, Gold smashed below its previous 2008 lows and then below $US 800. The upturn was abrupt with Gold making it back into the low $US 840s. However, Gold had not yet reached the lows it set back in April this year when it rebounded from just above the $US 850 level. Last week, as the USDX regained the 80 level, Gold broke down through its August lows and sunk as low as $US 745 before a rebound on September 12. And this week Gold rebounded all the way up to $Us 920 on an intraday basis in one if its most spectacular weekly performances ever.
The fantastic surge in Gold this week is best seen on the daily chart. For weeks now, the 10 and 20-day moving averages have been crossing and re-crossing each other. Two weeks ,the shorter-term MA moved just above its longer-term counterpart. That situation was reversed last week with Gold plummeting below the $US 750 level on September 11. This week the 10-day MA remains above its 20-day counterpart, but the Gold price has of course soared through both in one of the wildest weeks on Gold's history.
On the weekly chart, the 10-week MA moved below its 20-week counterpart in mid May for the first time since the beginning of the "credit squeeze" last August. How ironic that just over a month ago, the shorter-term MA moved back above its longer-term counterpart. Two weeks ago, that was reversed with the 10-week MA moving below its 20-week counterpart. And last week, Gold fell to well over $US 100 below both MAs on this chart. That entire gap has been erased this week with Gold closing between the two MAs after having soared back above both before the September 19 correction.
On the point and figure chart, the very steep uptrend line was sliced clean through in late March. For a better view of this, please see this chart (link appears here in original analysis). Gold fell as low as $US 852 - on the chart - in late April. In mid August, Gold smashed below those April lows. The point and figure chart really illustrates the "air pocket" which Gold has hit over the five weeks. Now, Gold has taken out its mid August lows only to turn and soar this week.
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
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As always, we refer you to thestrategic $US 5 x 3 point and figure Gold chart (link appears here in original analysis) for an overview on the situation.
This chart is a superb example of the value of point and figure charts for showing LONG TERM trends in a market.
Gold's big run up to $US 1000 started in September 2007 with the metal ending the year just below its all time highs in $US terms. It rose above the $US 800 level on November 2 and to all time highs above the $US 900 level on January 14. Then came mid March and $US 1000, and then came the correction.
Between late May and late June, Gold was tracing out a trading range between $US 870 and a bit above $US 900. You can see this on the chart and as the upturns and downturns came closer and closer together. A bit more than two months ago, the trading range was decisively penetrated on the upside with the $US 49 surge in Gold on June 26 and 27. The chart worked higher through the first half of July, right up until the bailout plan for Fannie and Freddie was announced.
Then, the price plummeted. In mid August, Gold fell below $US 800 - right back to its December 2007 levels. In the process, Gold smashed through the uptrend line. Technically, the formation on this chart is definitely the signal of a bear market. You can see, the price rebounded over the rest of August but remained below the uptrend line. By September 11, Gold had plummeted again, this time all the way down to $US 750 on the chart. And this week came the HUGE upturn and surge. Please note, however that Gold remains below its uptrend line on this chart.