Over the past year, the evolution of the Fed's public attitude towards interest rates has gone from complacency about present levels for "a considerable period" to "patience" to "acting as necessary to ensure the maintenance of price stability", to paraphrase Mr Greenspan from testimony before the US Senate given on April 21. It would seem that the harder Mr Greenspan focusses on "price stability", the less stable prices get.
As stated in our main Gold commentary this week, over the week just ended - EVERYTHING went down. Yep, Gold and silver too, although they did snap back (silver especially) a bit at the end of the week. Part of that was a natural reaction to the size of the previous falls. Part of it was (genuine) bargain hunting. Part of it (a small part as yet) was increasing nervousness about the state of the paper markets, and the first glimmerings of a hedging of bets against same.
The stock markets are worried. The bond markets are worried. US real estate is worrying. The Dollar is too, it is running on the spot. The speculators who dived into the commodity and precious metals markets for the simple reason that they were going up are long gone. People inside and outside the US are getting increasingly concerned that the Fed might actually NOT wait until November to raise rates.
They got another reason to worry on April 30 when Japan updated the report on its Yen selling exploits to include the month ending on April 27. Here's the record:
January 2004 --- 7.154 TRILLION Yen
February 2004 --- 3.342 TRILLION Yen
March 2004 --- 4.702 TRILLION Yen
April 2004 --- ZERO Yen
Remember when the Japanese said in late March that they were not going to continue with their intervention. They didn't. The Japanese had two zero Yen selling months in 2003. The first was April 2003 - Gold soared in May. The second was in August 2003 - Gold set new highs in its bull market in September. What might happen if Japan went without intervention for two months in a row? We may find out over the next month (or two).
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 over the past two weeks.
You can see yet another swan dive on the Gold price this week on the daily chart. a $US 13.20 dump - out of the clear blue sky - on April 28. After struggling back to its longer-term (20 day) moving average on the chart, Gold fell away again.
On the weekly bar chart, you can see Gold breaking down to 2004 lows this week and breaking below the important 40 week (200 day) moving average in the process. The last time this happened was a year ago in April 2003 - see the left edge of the chart. Gold closed for the week at $US 387.50 - $US 7.50 above its low (intraday) for the week.
On the point and figure chart, you can see that Gold is sawing on both sides of the downtrend (dotted red) line drawn through Gold's two previous peaks. This chart, being based on closing prices, does not show Gold's intraday retreat to $US 380 on April 29 - nor the $US 7.00 snap back on that day. However, having fallen below previous 2004 lows, there is as yet no clear support point on the chart. Gold would turn up on this chart on a close of $Us 389 or higher.
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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Take another look at this table, and the one above it showing the relative performance of Gold, the Dow, and the US Dollar since Gold climbed back above $US 300 to stay a little over two years ago. These performances should, but have not yet, given investors all over the world a good reason to pause for reflection.
Despite the big pullback of Gold and silver over the past month, their performance in comparison to stocks, bonds and Dollars over the past two plus years has been stellar indeed. This is despite the HUGE recovery on the US stock markets last year. In an investment climate where everything seems to be going down, investors start to look "outside the box" in an increasingly desperate attempt to find something which, if it will not generate profits, will at least maintain capital value.
We are fast approaching the beginning of rises in official interest rates in the "big three", the US, the EU, and Japan. This is already being anticipated, and fear is growing. Gold (and to a lesser extent Silver) has a record over the past three years which provides exactly what more and more investors are starting to look for. It is only a matter of time before this realisation sets in.
As stated in our main Gold commentary this week, precious metals and commodity prices always take a hit in the INITIAL stages of an interest rate rise. As the rate rise continues, as official rates are raised, and as fear of paper markets duly heighens, precious metals always turn around, sometimes quite violently, and start going UP. First we await support levels in Gold and silver. After that, we see how long the Fed can stay its hand.