For the last two weeks of March, Gold was (finally) moving up strongly against ALL major currencies, not just the US Dollar. On April 1, Gold traded above the $US 430 level and closed at a new 2004 high of $US 428.70. As recently as this Monday (April 12), Gold closed at 347.80 Euros, less than one percent below its all time high. Gold was right on the brink.
While the situation in Iraq was worsening, while Mr Bush was giving a truly scary (in terms of its incompetence and distance from reality) performance in front of the US media, while Vice President Cheney was in Asia trying to cajole (or browbeat) Japan and China into continuing their MASSIVE purchases of US debt paper, while Mr Bush and Mr Sharon were making a mockery of the Palestinian "peace process", and while US stock markets trembled and US bond markets toppled over, Gold was slammed downwards by $US 22.40 or 5.3% in three trading days. This is a SPECTACULAR level of desperation - for good reason.
US consumer confidence has taken an unexpected dive as the shear between official "price inflation" and the cost of living for everyone outside the Washington Beltway becomes so farcical that it cannot be ignored. More and more people, outside and even INSIDE Wall Street are growing more fearful by the day that official US interest rates are about to start rising - market rates are already rising. The realisation is dawning on more and more Americans that they are living in a "fools paradise" and that there is nothing more potentially dangerous to their financial health than such a situation.
The "solution", for the financial powers that be, is the same as it has been for a long time now. Hit the Gold (and Silver) price. If you cannot cut off that avenue of retreat from the financial system, then make it as unattractive as possible. Never let people become confident that they can use Gold or Silver as a substitute for paper assets. If such confidence were to ever take hold, the game is over.
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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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. As you can see, that has not changed despite the dive in the Gold price this week.
The technical damage is clearly revealed on the daily bar chart. Both April 13 and 14 were "gap down" days. Gold has slid well below both its ten and twenty day moving averages and the shorter-term average has crossed back below the longer-term one. On the chart, there is now the first indication of support just below the $US 400 level. the lowest point on this chart is Gold's intraday low of $US 388.20 set on March 3. Above that is, of course, the $US 400 level. After this sell off, we must wait and see where solid support emerges.
On the weekly bar chart, the "almost wide double top" we reported on last week has taken its toll. Gold has plunged back below its shorter-term (20 week) moving average and the steepest of its uptrend lines. The longer-term (40 week) moving average now stands at about $US 390, right around the low point for Gold in its previous correction.
On the point and figure chart, Gold has fallen back below the steepest of it uptrend lines. Three weeks ago, we stated that a close of $US 429 or higher (spot closing basis) would signal the END of the correction and the start of the next upleg on the $US Gold bull. We didn't get it. Now, interestingly enough, Gold has come right back to the line connecting its first two peaks of 2004 (the dotted red line) and turned up right there. As with the weekly bar chart, we must now await further evidence as to where Gold is to find solid support this time.
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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Gold's recent rise in terms of all major world currencies stalled on March 29. Its latest rise against the $US stalled on April 2. Its challenge of its all time high Euro position stalled on April 13 - when Gold fell $US 13.10. Over the past two weeks, Gold has been to the brink and then backed off.
In terms of their descripitons of the situation in Iraq, in terms of their dealings with other Heads of State, and in terms of their reassurances about the state of the US economy and the US financial system, the Bush Administration has entered the realm of "make believe". We mean that literally - MAKE BELIEVE! The US government is almost literally trying to MAKE people believe that what they say is true, no matter the evidence that anyone with eyes to see cannot avoid.
As we stated in our main Gold commentary of March 26, THE signal for Gold now is for the metal to set new "21st century highs" in terms of both $US and Euro. That remains THE signal and you can be sure that the people at the Fed, the Treasury, on Wall Street, and their equivalents all over the rest of the world know it. If Mr Bush can state that what he is bringing to Iraq is "freedom" and expect to be believed, why should the financial powers that be see anything incongruous about using paper proxies to Gold to hit the Gold price and then expect people to shy away from Gold, and Silver, as a way out of the financial trap which is closing around them?
The answer is, of course, that they don't see anything incongruous about it. Quite the contrary, they see it as being an essential part of their overall design. After all, one can't fight a war to make the world "free" without a lot of money, and unless people retain their "confidence" in that money, one can't use the money to buy the things one needs to fight the war.
All governments know that. Most of the rest of the worlds' governments also know that present US government policy has long passed the point of being merely "inconvenient" or "annoying" and has become downright DANGEROUS. They can't stop the US militarily. All they can do is to "take the money away". All it would take is for China or Japan to stop buying Dollars. The longer the present situation lasts and the more outrageous US policy gets, the closer we come to that event actually happening. It will come at the point where one or several US "allies" conclude that the actual cost of supporting the Bush Adminstration has become higher than the potential cost of defying them.