Depending on the chart you look at (bar or point and figure), the price of the Treasury ten-year bond either retreated to or a bit BELOW the trendline which has supported its entire post 1994 bull market this week. Ten year bond yields spiked as high as 4.85% on May 13 as the anticipation of an official rise in US rates - likely at the Fed's next meeting on June 29-30, continued to heighten.
Meanwhile, lest the increasing disarray on US bond markets be taken for any type of threat to the newly bourgeoning US Dollar, the vice Chairman of the Saudi Central Bank was trotted out (on May 13) to state that the Euro was not yet "competitive" against the Dollar as a potential reserve currency. Meanwhile, the head of the Japanese Central Bank delivered himself of the astonishing statement (given its source) that the foreign exchange markets were not the place to "fix" global economic imbalances.
All of this took place on May 13, while the US was announcing its biggest trade deficit ever ($US 46 Billion for March) and while Gold was closing at $US 374.90, a new low in its current correction.
Considering the fact that the Euro was only conceived in the late 1990s and did not become an actual cash currency until the beginning of 2002, the remark by the Saudi Central Bank official was quite a back-handed compliment. And considering the fact that the Japanese have been trying with might and main to "fix" global economic imbalances through the forex market for the best part of two years, the remark by the Japanese Central Bank head was startling, to say the least.
No matter, the immediate purpose was served. On May 13, the $US index reached a new 2004 high of 92.15 and Gold reached a new low of $US 394.90. Gold recovered on Friday to close the week with a loss of $US 2.00. The $US index backed off to close the week with a gain of 0.47.
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 Gold's current correction.
As you can see on the daily chart, with the exception of an intraday fall as low as $US 372 on May 10 and an intraday rise as high as $US 384 on May 12, Gold has spent the past week in the mid-high $US 370s. Once again, it is trying to build a support level.
On the weekly bar chart, Gold has spent its second week below its longer-term (200 day) moving average, a situation not seen since the bottom of the severe correction of April 2003. The weekly low close has been lower for the last six weeks, but the magnitude of the weekly fall has been greatly reduced this week. Be that as it may, Gold has yet to find support on this chart.
As we said about the point and figure chart last week - "The next major uptrend line on this chart is presently just above the $U 375.00 level. Gold hit that level with a close of $US 374.90 on May 13 before gaining $US 2.10 on Friday to cloe the week at $US 377.10. This line "should" provide support, it will if we get a close of $US 378 or higher in the coming 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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Since the US Treasury held its quarterly "refunding" auctions over May 11-13, all stops were pulled out this week to keep the Dollar looking healthy. We do not think that either the Saudi or Japanese gentlemen referred to above made their comments without at least a gentle "suggestion" that something along those lines might be appropriate from the US.
After three years of waiting for the "jobless recovery" to shake off its "joblessness", the fabulous (in the literal sense of the word) US employment reports for March and April have mesmerised many investors. This, combined with the unwinding of the "carry trade", has allowed the "analysts" to sell the fiction that higher US rates will lead to a stronger US Dollar.
As any cursory student of any currency bloodbath over the past thirty years knows, a dive in a currency due to economic imbalances which are perceived to have reached the danger stage is ALWAYS accompanied by higher interest rates. The speed with which the rates rise is usually seen as a measure of the severity of the economic imbalances. In fact, most currency meltdowns accelerate as the rise in the interest rates of debt denominated in the currency under pressure accelerate upwards.
"But that was them - and this is US!" - says Wall Street (and Washington). "There is no substitute for US Dollars" - says Saudi Arabia. "We don't want to mess about on the forex markets any more, there's no need" - says Japan. " The economic recovery is no longer 'jobless'" - say the cooked employment numbers. "There is no inflation in the US!!" - yes, they're actually trying to claim that too, as astounding as it might seem.
Meanwhile, as pressure under interest rates grows, the pressure to unwind the US Dollar "carry trade" grows with it. As the carry trade unwinds, the LAST prop under the US Dollar erodes. As we have pointed out on these pages before, US "authorities" have now been UTTERLY exposed as liars, not only in their reasons for invading Iraq, but now also for the method they have carried out the war and especially the occupation. The lies about the US financial and economic situation are just as grotesque and just as glaring. Wait for the contrast to become too great, and or for the Fed to bite the bullet and RAISE rates. One or both will be the trigger.