Observant readers of this page will notice the question mark (?) we have added to the title.
We have been writing this page on a weekly basis since 1996. That's a long time ago. The original title was the Gold BEAR Market. Then between 1999 and 2002, the title was the "Gold Bottom This Week". Then, when Gold got back above the $US 300 level to stay in March/April 2002, we changed it to the "Gold Bull Market This Week.
As you know, the $US Gold price has plummeted this week. Since last Friday (August 8), Gold has plummeted from $US 864.80 to $US 792.10 on a spot future closing basis. That's a fall of $US 72.70 or 8.4 percent. More relevant, Gold is now down 21.1 percent from its spot future closing high of $Us 1004.30 set on March 18, 2008. Conventionally, a fall of 20 percent or more from a major high is the definition of a bear market. The Dow - and almost all other major stock markets in the world - have already fallen 20 percent or more from the highs they set late last year. Now, Gold - and Silver too - have joined them. So has the price of almost every commodity priced in US Dollar terms.
As we stated here last week - "When the Treasury stepped in to rescue Fannie and Freddie in mid July, stock markets rallied and commodities keeled over. Of course, since the beginning of this month, the global marketplace has become even more "inverted" with a big rally on the US Dollar.
Technically, Gold is indeed in a bear market - more on this below when we discuss the $US 5 x 3 Gold chart. So, right now, is almost everything else, most certainly including the US Dollar. The financial world is in the grip of a vicious monetary deflation and prices are increasingly reflecting the fact. The most recent dive has been in commodity and precious metals prices. We have not yet seen any concerted attempt to exit the system altoghether, hence the fact that Gold and Silver have now joined in the price rout.
That is PAPER Gold and Silver. The demand for the physical metal have not slacked off in the slightest. In May, the US Mint ended sales to the public of their popular Silver bullion coins. This week, they have taken a similar step with their Gold Eagle bullion coins. At present prices, they simply can't get the metal they need to make them with. The paper pushers are dumping their paper "claims" to Gold while the private holders of physical metal are looking on with glee, waiting for any faltering in this sell off as an opportunity to add to their holdings.
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 a bit less than 14 to 1 on a percentage basis since early 2002.
The USDX has not closed above the vital 80.00 level since September 6 last year. It has continued to fall since then and accelerated down in the first half of March. On Monday, March 17, 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. The past two weeks have a HUGE US Dollar rally, including the biggest one-day gain since 2005 on August 8, up 1.29 points or 1.73% on the day. This week, the USDX is up another 1.34 points or 1.76%.
Last week, Gold made its closest approach to $US 850 since April. This week, it has smashed through that level and then through $US 800. At its present spot future close, Gold is now back to its levels of mid December 2007.
As you can see on the daily chart, the Gold price plummeted in mid March, falling well below both 10 and 20-day moving averages (MA). By late May, that fall had the inevitable consequence of pushing shorter-term 10 day moving average back below its longer-term 20 day counterpart. We have had several crossovers since then. A little over a month ago, the shorter-term MA once again above its longer-term counterpart. That situation was revesed two week with the 10-day MA plummeting below its longer-term counterpart. This week, of course, Gold plummeted. At its present levels, Gold is more than $US 50 below its 10-day moving average. Traditionally, it is in hugely oversold territory.
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 three weeks ago, the shorter-term MA moved back above its longer-term counterpart. That remains the case this week but as you can see on the chart, the price has plummeted far below both MAs. Gold is now well over $US 100 below its 10-week moving average. Again, hugely oversold.
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. Now, on an intraday basis at least, Gold has smashed below those April lows. The point and figure chart really illustrates the "air pocket" which Gold has hit over the past month. It has gone almost straight down.
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 the strategic $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 month 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.
Now, the price has plummeted. Last week, Gold was challenging its April 2008 lows. this week it has fallen below $US 800 - right back to its December 2007 levels. In the process, Gold has smashed through the uptrend line, distributed below it, and then broken lower still with its fall below $US 800 on August 15. Technically, the formation on this chart is definitely the signal of a bear market.