The view from The Privateer (it's only a matter of time):
From Gold This Week
(sorry I can't get the charts to paste-if you want the charts, subscribe)
A Tale Of Two Charts
The first chart here is a long-term $US Gold point and figure chart. The "scale" is $US 5 times 3 and classically, point and figure charts are plotted on CLOSING prices. This chart goes back to Gold's 1982 bottom at $US 296. If the price trend is rising, you have a row of "X"s. If it is falling, you have a row of "O"s. The chart is a "three point reversal" chart which means that the price must rise or fall a total of three "points" for the chart to change direction - to turn up or turn down. Since a "point" (an "X" or an "O") on this chart is $US 5, Gold must close at least $US 15 below a previous high or $US 15 above a previous low for a change in direction to take place.
As you can plainly see, this makes for a chart which can compress many years of trading into a quite small area. The great utility of point and figure charts is their ability to isolate trends, since there is no fixed "time" axis on them. A "three point reversal" can literally take anything from one day to three months - or even more - to occur.
On this chart. you can see a downtrend drawn through the Gold bull market tops in 1987 and 1996. The anchor points on this trendline are almost a decade apart, the trendline itself is nearly sixteen years old. Clearly, it is a formidable technical barrier.
How formidable a barrier it is shows very clearly on this chart. You can plainly see that Gold has been beating its head against this trendline ever since it leaped from $US 320 to $US 380 in December 2002/January 2003. The chart tried to blow through the barrier in February 2003, in May 2003, and now it is trying again in August 2003.
We have this same chart going all the way back to Gold's $US 102 low in August 1976. On that chart, we have the SENIOR downtrend line which is anchored on Gold's all time high of $US 850 (closing basis) set back in January 1980. The chart is simply too big to reproduce here. On that chart, the downtrend line is now ever so slightly below the 1987-96 downtrend line shown on the chart above.
In essence, Gold has spent almost the whole of this year so far trying to get above those two trendlines. Although a bull market in Gold has been established for well over a year now, the FINAL technical barrier standing in the way of a Gold surge has yet to be breached. You are looking at that barrier on this chart. A breaching of this final downtrend would clear the LAST technical barrier out of the way of Gold, paving the way for a BIG rise which could well take place in a comparatively short period of time.
By way of comparison, here's how Gold went in the last BIG bull market - the one in 1976-80
$100 to $200 -- August 1976 to July 1978 -- 23 months
$200 to $400 -- July 1978 to October 1979 -- 13 months
$400 to $800 -- October 1979 to January 1980 -- 3 months
If you want to know where the phrase - "There ain't no rush like a Gold rush" - comes from, check out Gold's doubling in the three months between October 1979 and January 1980.
Now, here's the second chart we want you to look at.
"What has REALLY got the attention of the "gold bugs", and even the non "gold bugs", is the performance of Gold stocks over the past three weeks. Gold stocks have prospered on Gold moving up while all but ignoring its sudden move down in the last week of July. And now, as already stated, US Gold stocks have climbed to heights last seen in 1997. Aussie Gold stocks are VERY close to those heady levels too."
(Gold Last Week - August 8)
The chart above is a monthly bar chart (semi-log scale) of the Australian Gold Stock Index (XGO). It is plotted from the inception of the index at the beginning of 1985. As you probably know, the XGO was discontinued by the Australian Stock Exchange in July 2002. Ever since then, The Privateer has compiled our own version of the XGO.
On this chart, you can see three BIG Aussie Gold stock bull markets. These were from mid-1986 to September 1987 (a month before the 1987 crash), from late 1992 to early 1994, and from mid 2001 TO DATE.
Now, take a look at the major downtrend line on this chart, the one connecting the XGO's all time high in September 1987 and the 1993-94 bull market high set in January 1994. Note that in the present bull market, this downtrend line has been penetrated three times, in May 2002, February 2003, and August 2003. Note that the latest penetration, in August 2003, has now reached a higher level than either of the two preceding it. It did that with a close of 1689.98 on August 11. Finally, note that for the past two months, the XGO has been trading ABOVE that senior downtrend line.
Unlike the $US 5x3 Gold point and figure chart above, the XGO chart HAS conclusively broken above its longest term downtrend. Unlike the Gold chart above, the XGO HAS confirmed the second leg of a BULL market for Aussie Gold stocks. Yep, that's right, Gold stocks are leading Gold.
Thus, Aussie Gold stocks (and the HUI in the US has reached six year highs too) are signalling the start of a SECOND leg in the $US Gold bull market. For the $US 5 x 3 Gold chart to confirm a second leg in its bull market, spot future Gold is going to have to close at $US 390 or higher.
Up until a week ago, neither the senior $US Gold chart nor the senior Aussie Gold Stock Index (XGO) chart had managed to climb above their previous 2003 highs. Now, both the HUI and the XGO have done just that. By ALL historical precedent, the $US Gold chart should follow in fairly short order.
No, we don't know whether it will be a week or a month or even longer. The main point is that it DOESN'T MATTER. BOTH Gold stocks and Gold are in bull markets. US and Aussie gold stocks have just confirmed the SECOND LEG of their bull market. Gold will follow. Historically, it ALWAYS has.
©2003 The Privateer Market Letter
And from the The Gold Bull Market This Week:
Charts And Commentary
Daily Bar Chart
10 and 20 day MA
Weekly Bar Chart
20 and 40 week MA
$US 1.00 x 3 P&F Chart
Based on Closing prices
The Present Bull Market: Weekly bar chart back to 1996.
Gold Bull/Bear Markets: Monthly bar chart back to 1975.
The major event for Gold over the past week has been the new 2003 highs set by Gold stocks in both the US and Australia. This even signals the second leg in the Gold stock bull market, and is an infallible indicator that Gold itself will follow. For more, please see our main Gold commentary.
Of course, Gold had a good week. With the exception of the $US 2.80 fall (to $US 363.20) on Friday, August 15 on desultory volume and amid the biggest power blackout in North American history, Gold rose every day this week. the gain for the week was a healthy $US 6.90. Further, with Gold closing at $US 366.00 on August 15, this upmove has now gone higher than the last upmove which peaked on July 28 with spot future Gold closing at $US 364.90.
That was before Gold was hauled down $US 18.80 in four trading days to prepare for the Treasury refinancing Auctions over August 5-7.
This week too has seen the latest FOMC meeting on August 12 at which the Fed held official rates steady and stated as bluntly as they ever state anything that they would NOT be raising rates "in the foreseeable future". The next day, the Treasury market swooned with all issues of three-year or greater maturity hitting new 2003 high yields. So much for "reassurance".
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:
Market March 27 August 15 Result Percent
$US Gold $302.20 $363.20 +$61.00 +20.19%
$US Index 118.91 96.84 -22.07 -18.56%
Dow 10427 9321 -1103 -10.58%
If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt.
This is the first week in the past four when Gold has not seen a $US 10 plus move over the week. Three weeks ago, Gold was up $US 15.50. Two weeks ago, it was down $US 16.70. Last week, it was up $US 10.20. This week, it was up another $US 6.90. You can see the whole thing played out on the daily bar chart. Note that the two (10 and 20 day) moving averages have converged this week.
On the weekly bar chart, the shorter-term 20 week moving average has turned up this week, very reminiscent of what it did at the start of Gold's last "run" in early May. The shorter-term MA is comfortably above the longer-term (40 week) one with the Gold price again comfortably above both. Take a look at the 40-week MA on the longer-term weekly chart. You can see that it has been tracking the accelerated (post December 2001) uptrend line ever since it was estabished and continues to do so. Having overshot and undershot this uptrend in February and March 2003, Gold has remained firmly in it ever since and now again sits about halfway up the channel.
"The high point for the line of "X"s preceding the present one was $US 364 set on July 28. If this move get above that July 28 level, a strong signal will be given for an assault on Gold's 2003 highs ($US 379 on a closing basis)". That's what we said about the point and figure chart here last week. As you can see, Gold has climbed above that $US 364 high htis week, but only by two "X"s as yet. On this chart, Gold has been particularly volatile since it set its "triple bottom" just below the $US 345 level.
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:
Market 2002 High/Low August 15 Result Percent
$US Gold $278.40 (1/24) $363.20 +$84.80 +30.46%
$US Index 120.59 (1/31) 96.84 -23.75 -19.69%
You will find charts of the $US index and Gold here for comparison.
The Treasury got through its refunding auctions and the Fed has met and left interest rates alone. Bond yields are still rising. And now, with the blackout, competent US and Canadian engineers are articulating what most knew but none were prepered to mention, the fact that the US has a "third world" power grid. It must be true, Mr Bush wants the grid "updated". The cost? Well, they haven't really gotten around to figuring out that yet.
No sooner had the "economic recovery" been touted by the President of the US than the backbone of that recovery, the power grid, cracked right down the middle. This is one more piece of evidence of the demise of the real goods industries of the US. For MUCH more on this, please see the new issue of The Privateer - #482 - published on August 17.
With the new 2003 multi-year highs on US and Australian Gold stocks, investors have shown that they expect Gold to break out of its doldrums very soon. In EVERY previous instance of the confirmation of a new leg in a Gold stock bull market, physical Gold prices have confirmed the confidence. This one will be no different. We happily await a new upleg on the GOLD bull market. It's merely a matter of time.
©2003 The Privateer Market Letter |
