"Has $US 500 been left behind? Not quite yet. By way of comparison, look at what happened the first time Gold broke through $US 300 and then $US 400 in this bull market."
"... when Gold broke above $US 300 it got to $US 325 before turning down. When it broke above $US 400 it got to $US 425 before turning down. Now, it has broken above $US 500 and got to - that's right - $US 525 on the chart. There's no downturn yet, of course. But if Gold is going to correct as it did at the $US 300 and $US 400 breakthroughs, it had better not go much higher before the downturn does take place. If Gold can get to $US 540 or so with no downturn on the $US 5 x 3 chart, it may not correct until it is MUCH higher."
The Gold Bull Market - December 9, 2005
Gold DID get to $US 540 - in intraday Asian trading on Monday, December 12. It even got to $US 538.50 on a spot future basis in intraday trading in the US on the same day. But those levels didn't hold. Gold closed in the US on December 12 up $US 1.40 to a new bull market high of $US 528.40. That's $US 10.00 below the intraday highs it had set a few hours earlier. The rest of the week has been history, with Gold plummeting $US 25.00 in four trading days to end the week on December 16 at $US 503.40
As we said last week: "Has $US 500 been left behind? Not quite yet." Just as it did at the $US 300 and $US 400 levels, Gold has breached $US 500 by $US 25 (on the $US 5 x 3 point and figure chart) before turning down. The difference is that unlike the correction at $US 300 and $US 400, Gold has not yet gone back below $US 500 on a spot future closing basis. Not yet anyway - it did trade as low as $US 494.00 intraday in Japan on December 16.
The similarities here are quite stark (all quoted prices below are spot future CLOSING prices). Gold broke decisively above the $US 300 level in late March 2002 and reached a high of $US 327.80 on June 4 before correcting. Gold broke decisively above the $US 400 level at the beginning of December 2003 and reached a high of $US 426.80 on January 9, 2004 before correcting.
In 2002, it took six months until mid December for Gold to decisively take out the $US 327.80 level it had set on June 6. In 2004, it took ten months until mid November for Gold to decisively take out the $US 426.80 level it had set on January 9.
At the beginning of this week, on December 12, 2005, Gold hit $US 528.40. How long is it going to take for THAT high to be taken out? Will it take six months as it did in 2002 to take out Gold's first highs above $US 300? Will it take ten months as it did in 2004 to take out Gold's first highs above $US 400? Or will it happen much more quickly this time?
As we have been stressing in recent analyses on these pages, $US 300 was the bottom and $US 400 was the mid point in a gigantic trading range which has confined the $US Gold price for almost exactly 25 years - since early 1981. On a spot future closing basis, the TOP of that trading range was the $US 510 level which Gold hit at the end of January 1983. To find prices higher than that, one has to go back to late March/early April 1981 when Gold was falling from its all time high of $US 850 set in January 1980.
Spot future Gold closes above the $US 510 level have been comparatively rare beasties in the post August 1971 history of Gold uncoupled from the $US (or any other currency). Gold only broke through $US 500 for the first time on December 27, 1979 - just over three weeks before it hit the famous $US 850 all time high on January 21, 1980. And to put THAT level in perspective, Gold has only ever had two spot future closes above $US 800 - on January 18 and 21, 1980. It has only had nine spot future closes above $US 700 - four in January 1980, two in February 1980 and three in September 1980. As far as the $US 600 level is concerned, Gold has only traded above that level in one year - 1980 The first time that spot future Gold closed above $US 600 was on January 7, 1980. The last time was on December 24, 1980.
And what has "pulled the plug" on this first Gold foray above the $US 510 level since 1981? The major culprit has been the Japanese futures exchange - TOCOM - which has spent the past week doing its level best to "curb" Gold trading. It's purpose, to quote its own website, has been to: "...make the market in line with price movements in overseas markets, and to make it easier for customers to withdraw from the market."
You can see a list of all the gold related "adjustments" to trading on the TOCOM over the past week by visiting a their home page.
After bidding Gold up to the $US 540 level on December 12, traders on the TOCOM have certainly decided to "withdraw from the market". While Gold was falling $US 25 or 4.7% on the COMEX, it was falling 5,240 Yen or 8.25% on the TOCOM.
The fact that Gold has been "hit over the head" again is not particularly interesting. What IS interesting is that this time, the job was given to the Japanese. It should be remembered that the COMEX increased their margins on Gold trading by 50% on November 30. That was a one day wonder which pushed the spot future close down $US 4.50 on the day but then evaporated as Gold surged above the $US 500 starting on the first day of December. Thus far, the TOCOM has been much more successful, although the chart of Gold in Japanese Yen was indeed getting a bit "frothy" before the abrupt about face this week.
So, as we stand Gold is back to where it was at the beginning of December, having more or less duplicated the climb it took when it broke through the $US 300 and $US 400 levels. We are now in the process of correcting from the FIRST challenge to the TOP of Gold's enormous 1981 to date $US 300 - $US 500 trading range. It must be stressed here that demand for PHYSICAL Gold, as opposed to the paper Gold which trades in futures markets, has not diminished one iota. It is still strong, it is still global, and it is still mounting in the face of inadequate physical supply. The abrupt change in the "rules" by which Gold futures are traded in Japan has certainly had a damping effect, an effect which a similar action in the US futures markets just over two weeks ago did NOT have. This, in itself, is one more in the growing series of indicators of the waning influence of the US on the world's financial system in general and world markets in particular. The question must be asked - how much longer can the rest of the world be "relied upon" to bail out the US Dollar led system?
The US is in political and financial disarray. The Bush Administration has just been handed a MAJOR defeat in the Senate where the bill for the extensions to the Patriot Act has been voted down. Worse, Mr Bush is facing growing allegations that he personally authorised the National Security Agency (NSA) to spy on Americans, an action which is contrary to their "mandate" and which, if proven, is an impeachable offense.
Financially, US debt levels are growing at ever increasing speeds. The US Treasury faces the need for another debt ceiling rise, by March next year at the latest. At the end of January, Mr Bernanke takes over from Mr Greenspan. This is fraught with danger whoever the new appointee proved to be and especially so in the case of Mr Bernanke, who is an inflationist (in the true sense of that term) to his fingertips. And on May 23, the broad money (M3) supply numbers will cease to be reported, leaving legitimate financial advisors even further in the dark in relation to the TRUE state of affairs in US financial "management".
On Gold itself, the first thing to be resolved is whether the spot future price can remain above the $US 500 level or, if not, how low it will go before solid support is found. However long this correction lasts, the next upmove, whenever it comes, will be the one which finally breaks through Gold's 25 year trading range. And that's going to be a very big deal indeed.
Important Note:
All readers of these pages, but Australian readers in particular, are urged to read this article from the Brisbane Courier Mail. And the sooner the better.