"Gold gained $US 23.60 in the four weeks between June 2 and June 28, and has spent the past two weeks giving almost exactly half of it back. Quite a normal reaction in any market, but especially in one which has been in the doldrums for a LONG time after having gone nowhere but down for an even LONGER time."
(Gold Commentary - July 14)
And this week, of course, Gold has given a little more of it back. At its close of $US 280.60 on July 21, Gold has corrected by 58% from its June 28 high. On July 19, when spot future Gold hit its low close for the week of $US 279.60, the correction was 62.1% (very close to the .618 beloved of all fibonacci devotees).
Apart from the Gold price itself, which has almost stopped moving at all, the main change this week were to the open interest totals (see above) on Gold futures contracts. Open interest on all contract months has collapsed to just above the 128000 level. That is the lowest open interest figure for more than seven years. The last time that open interest was at such a low ebb was in March 1993. That's right, at the take off point for the last Gold bull market.
The other main event this week was the first sign that the month long U.S. Dollar rally might be running out of gas. On July 19, the $US Index fell almost a full percentage point (109.31 to 108.34). Perhaps is was a "coincidence" that the U.S. Trade Deficit for May was announced the previous day, but we doubt it. The deficit? A new record of $US 31 Billion. Perhaps it was also a coincidence that Gold stopped falling the next day. We shall see.
It is quite understandable that Americans don't pay much attention to what goes on outside their borders. It is perfectly understandable that Americans are completely unconcerned about what goes on in financial markets outside their borders. After all, when Mr Greenspan makes a speech on July 12 in which he states that another financial crisis is "inevitable" and follows it up on July 20 with a speech to Congress in which he implies that everything is under control, the implication is clear: "Sure there will be another financial crisis somewhere - but it won't happen here!"
On Friday morning here in Australia, we read literally reams of analysis on Mr Greenspan's latest utterings, all of it to the effect that a "soft landing" was in the bag. And sure enough, we awoke on Saturday morning to find that the Dow had fallen 110 points and the Nasdaq was down too. But for that hardy band of Americans who follow the vicissitudes of Gold (and Gold stocks), the attitude was one of unalloyed (indeed almost 24 carat) gloom.
Over the week to July 21, the XAU has fallen by 3.59 points or 7.1% to 50.75 points. That is the lowest it has been since that hair raising dump back on August 31 1998, when the index hit a multi-year low, closing at 48.89 points. Of course, August 31, 1998 also happened to be the day of the biggest one-day Dow fall (in numerical terms) ever. It should also be remembered that the XAU staged a spectacular "bounce" from that low. By October 7, 1988, it had risen to 86.63, up 77.2% in just over a month. No one expects a similar situation to occur this time.
In fact, those who follow Gold in the U.S. don't expect Gold or Gold stocks to do anything at all, except continue to fall. They are absolutely sure that the Gold upturn in June is a false alarm, because U.S. Gold stocks have not risen at all - they have fallen. And it's true, U.S. Gold stocks have fallen.
But look at the sharp contrast here on the Australian Gold index. In the past month, the Aussie index has rallied by more than 10%. On top of that, it has held nearly all of its gains in the face of a lower $US Gold price. And finally, the Gold index has risen by far more, on a percentage basis, than the $A has fallen against the $US over the same period.
We can well understand the consternation felt by Americans with the performance of their local Gold stocks. Looking simply at the performance of the XAU, it is easy to come to the conclusion that Gold is not going to rally and that there can be no prospects for a rally until U.S. Gold stocks pull out of their dive. An Australian investor looking at his own domestic Gold stocks would come to precisely the opposite conclusion.
Is the Aussie right and the American wrong? Not necessarily, but we would contend that he or she has a better handle on the situation, simply because he or she does NOT look at the local market as being the center of the universe.
Gold has been trodden underfoot for years now. There is no doubt in the mind of anyone who follows Gold and does not live in the U.S. that the U.S. has been doing most of the "treading". Gold is doing vastly better in terms of every other major currency in the world than it is in terms of the U.S. Dollar. Gold stocks in other major Gold producing nations are not crashing as are U.S. Gold stocks.
Finally, there is the situation on the U.S. Gold market, where open interest in the Comex has collapsed (see above). Looking at the charts that we post on this site, it should be clear that the exceptions are the $US Gold charts. In Gold stocks, the glaring exception is the XAU index. In Australia, the Gold rally which began in early June is intact, as is the Gold stock rally which began in late June. We have seen this before in the lead up to changes in direction in $US Gold and U.S. Gold stocks. We don't yet know for sure if we are seeing it again, but all the technical signs point to it. Take a good look around the charts at the site this week, and make up your own mind.