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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The stage is set. The US central bank has cut its controlling interest rates to - effectively - ZERO. The example of Japan did not deter Mr Bernanke or his colleagues at the Fed. They would now have the world believe that the world's most indebted nation with a government deficit now on a $US TRILLION plus yearly rampage can issue debt paper bearing no interest whatsoever with complete impunity.
The initial indicators are not encouraging. The US Dollar has given up half of its post July 2008 gains in less than two weeks. US Treasury paper yields have hit all time lows from one end of the yield curve to the other. During this rampage, almost ALL the nominal gains in Treasury paper prices - which move in the opposite direction to yields - have been erased for foreign holders by the US Dollar dive.
As we approach the end of the year, these foreign holders are expected to go on buying Treasury paper which sport yields of between zero and 2.5 percent issued by a government which candidly points to TRILLION plus annual budget deficits for the foreseeable future. The yields on Treasury paper have nowhere to go but up. The prices in the secondary markets for this paper has nowhere to go but DOWN.
In sum, despite its sudden fall on December 19 when it fell $US 23.20 against a resurgent US Dollar, the prospect for Gold could hardly be better as we approach 2009. Indeed, the prospect is better now than it was at this time last year when Gold was approaching its January 1980 all time high. Of course, that high was taken out early this year with Gold going on to top the $US 1000 level in mid March 2008.
Then, like all the other "commodities", Gold was sold off in the great deleveraging and capital repatriation avalanche of the second half of this year. At its closing price on December 19, Gold is precisely $Us 0.60 or 0.07 percent below the level at which it began the year. If there was ever a year which proved the old adage that Gold is number one at maintaining its purchasing power in times of economic and/or monetary strife, 2008 was the year. 2009 promises to be another.
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. But look at the respective percentage gains. Actually, look at Gold's percentage gain in $US terms. The Dow is well over 17 percent BELOW its level of nearly seven years ago in March 2002.
The USDX did not close above the 80.00 level for just over a year - from September 2007 to September 2008. On Monday, March 17, 2008 (as Gold topped $US 1000) the USDX hit a nadir of 71.30. Then came the turnaround. On September 11, the USDX got back above the 80 level for the first time in a year, closing at 80.15. On November 21, the USDX closed at its highest level since April 2006. By December 16, the day the Fed cut its rates to ZERO, the USDX had dipped back below that 80.00 level.
Back on September 11, as the USDX regained the 80 level, Gold broke down through its August 2008 lows and sunk as low as $US 745 before a rebound on September 12. Then Gold rebounded all the way up to $US 920 on an intraday basis in one if its most spectacular weekly performances ever. Gold gave all that back and more. Three weeks ago, Gold hit a new spot future low close of $US 705.00 on November 13 before rebounding back up to $US 816 two weeks later. After falling back to just over $US 750 two week, Gold has rebounded this week to $US 868 on a spot future basis before the sell off at the end of the week.
On the daily bar chart, the 10 and 20-day moving averages were crossing and re-crossing each other for weeks. In early September, the shorter-term MA moved just above its longer-term counterpart. That situation was reversed with Gold plummeting below the $US 750 level on September 11. Then the shorter-term average moved above its longer-term counterpart again on a fantastic plus $US 100 turnaround in Gold. That situation was reversed early in October and three weeks Gold plummeted at one point almost $US 70 below its ten DAY moving average. A month ago, the Gold price moved back above BOTH moving averages. Three weeks ago, the 10-day MA once again crossed above its 20-day counterpart. That situation has been maintained ever since and remains the case this week.
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 in August, the shorter-term MA moved back above its longer-term counterpart. That situation was quickly reversed and in mid September, Gold fell to well over $US 100 below both MAs on this chart. The swings since then have been wild, but the shorter-term MA remains below its longer-term counterpart. Three weeks ago, Gold actually traded above its longer-term 20 week MA for the first time in almost two months. As you can see, it has done it again this week.
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 and then went much lower still in mid September. As you can see, the action since then has been wild to an almost unprecedented degree. Two weeks ago, Gold retreated all the way back to the top of its recent trading range. Since then, the chart has moved up well over $US 100 before turning down in late trading 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 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 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. It then surged. But over the month, Gold gave back all those gains and dropped below its mid September level.
Note that this drop has led to a new and steeper downtrend line on the chart. But note also that Gold's upturn on the chart on October 24 came precisely at the bottom of the down channel. since then, we had two more upturns from almost the same level, strengthening this line as support. Gold got all the way back up to $US 816 three weeks only to give up a bit more than half those gains in a week. For the past two weeks, Gold has gone straight up, the downturn coming at the end of this week. Despite this downturn, the chart is getting more "promising" almost by the day.