Last week (April 15 - 19) the $US index fell 1.43 points (118.02 to 116.59) or 1.2%. Gold rose $US 0.20 ($US 302.10 to $US 302.30) or 0.066%. This week (April 22 - 26) the $US index fell another 1.36 points(116.59 to 115.23) or 1.17%. Gold rose $US 9.30 ($US 302.30 to $US 311.60) or 3.08%. So how did the situation change this week to produce such a radical difference, not to the weakness of the U.S. Dollar but to the STRENGTH of the $US Gold price?
Quite a few things changed, actually. Let's take a look at some of them:
Wait a minute! Come again on that last one!!
Here is a direct quote from the Associated Press report:
"Breaking out of the doldrums, the economy grew in the first quarter at a 5.8 percent annual rate, its strongest performance in more than two years and proof positive that last year's recession is history."
We won't go into the details of this amazing report here - click on the link if you would like to read more. Suffice it to say that the major contributors to this miracle of modern economics was a HUGE fall in business inventories, an even HUGER spike in government spending, notably military spending, rampant housing construction, and consumer spending.
With the partial exception of housing construction, NONE of these activities is productive. Just the opposite. And housing, it must never be forgotten, is a CONSUMPTION good, not a PRODUCTION good. How the array of statistics used by the Commerce Department to "prove" that the U.S. is enjoying robust economic "growth" again can be taken seriously by ANYONE beggars belief.
And here lies the problem. The fact is that government statistics which purport to represent economic "reality" are NOT being taken seriously by more and more people, both outside and INSIDE the U.S. It is hard to sell a picture of economic strength when unemployment is rising, incomes are falling (as illustrated by the $US 60 Billion fall in the "tax rush"), investments are in the red, and government spending and deficits are ballooning at rates not seen for decades.
What did not change over the past week was the actual state of the U.S. economy and the actual shambles which is U.S. foreign policy - especially in the Middle East. What DID change this week was the perception of these things. The more strident the assurances that everything was under control became, the more pronounced the weakness in U.S. markets and currency became. We don't yet know if this claim of 5.8% economic growth is going to be the one to push a critical mass of non-believers over the edge, but if it isn't, it is hard to see how it can be topped.
It has been a long established observation, by no means confined to The Privateer, that the two most important tasks which U.S. economic policy makers had set themselves was to keep the Dow ABOVE 10000 and Gold BELOW $US 300. This week, they dropped the ball on BOTH counts. As of April 26, the Dow is at 9910 while Gold is at $US 311.60.
It is VERY significant that during the week when Gold finally confirmed that it is indeed in a bull market in U.S. Dollar terms, the U.S. government should trumpet the biggest increase in "economic growth" since the "boom days" before the U.S. stock indexes fell over in a heap. The last time the U.S. economy was "growing" this fast was in late 1999, just after Gold had hit a 20 year plus low of $US 253.
Now, with the $US Gold price having gradually risen for a year, the U.S. is reportedly back at those heady levels again. In 1999, what was growing was U.S. stock markets. Now, what is growing is U.S. government spending. But GENUINE U.S. productive capacity? That wasn't growing then, and it isn't growing now.
Historically, it has always been surprising how long the facade of economic "prosperity" can be maintained by the use of smoke and mirrors. But the mirrors crack and the smoke blows away every time. That is what is beginning to happen now. And that is why, after having been stalled there for a month, the U.S. Gold price has finally cracked through its $US 300 barrier.