Gold's 2002 intraday high is $US 329.80 set on June 4. A week ago, on Friday, September 6, Gold closed at $US 320.40. In early trading on Monday, September 9, Comex spot future Gold was trading at $US 324.90 - up $US 4.50 on the day and having bridged almost half the gap between its September 6 close and its 2002 intraday high. But Gold didn't hold that level, it closed on Monday, September 9 at 321.70. And it closed the week on September 13 at $US 317.00 - down $US 2.30 on the day and $US 3.40 on the week.
In the middle of all this, the U.S. and the world observed the anniversay of 9/11 on Wednesday. That is, the American people and people everywhere observed the anniversary, many of them without recourse to a television set and most of them in their own way. The U.S. media on the other hand, especially the TV media, positively wallowed in it.
The next day, President Bush addressed the UN and Fed Cheif Alan Greenspan addressed the U.S. Congress. President Bush gave a dignified version of "my way or the highway" to the UN. Mr Greenspan gave his usual turgid "testimony" to Congress, capped off with the assertion that any economic consequences stemming from preparing for and fighting an open ended war in Iraq "ought to have" no bearing on those doing the preparing and the fighting.
This was right after he had "warned" Congress of the consequences of the reversion to large budget deficits. Of course, the deficits are one, amongst many, of the consequences of the planned war on Iraq (and terrorism, of course). It is not surprising that the number of people who take Mr Greenspan seriously is now dwindling fast. It IS suprising that anyone EVER took him seriously. But, as recent history makes eloquently plain, they did.
But Mr Greenspan's reputation as being financially omnipotent IS badly fraying, to say the least. This is true even when almost everyone is being distracted from paying attention to the financial/economic situation in the U.S.. The focus remains almost totally on when (not if - almost nobody thinks there is an "if") Mr Bush and his merry men will choose to attack Iraq. If (when) the focus DOES return to the financial/economic situation, what is left of Mr Greenspan's reputation will implode as fast as the U.S. paper markets implode. This is, of course, one of the main reasons why Mr Bush and his merry men are fixated on war with Iraq.
Last week, we asked you to take a look at the $US 5 x 3 point and figure chart. On September 6, this chart turned up for the first time since it reached its 2002 high in early June. This upturn is HIGHLY significant because Gold has now distributed on this chart while remaining ABOVE the $US 300 level. This upturn above $US 300 is as close to a "guarantee" as technical analysis can give that $US 300 is now the Gold "floor" again - just as it was from 1979 to 1997.
The future is uncertain. There can be no guarantees about anything which has not happened yet. Suffice it to say that to force Gold back below $US 300 - especially if other (stock, bond currency) markets are also imploding - would take an extraordinary attack by the financial powers that be. It would also be a sign of an immense desperation in the face of what would be perceived as a fatal threat to the regime of "floating" "fiat" currencies.
Signs of that desperation are already emerging. On Friday, September 13, longer-term Gold lease rates in London plummeted. The six-month rate reaching a 2002 low and the one-year rate (at 0.659%) only 8 basis points above its 2002 low and down 52 basis points on the day. London is trying with might and main to make it as easy and as tempting as possible for the "bullion banks" to borrow Gold.
You will also note on the table above that open interest on the Comex has surged this week. Over the two weeks between August 23 and September 6 when Gold rose from $US 306.70 to $US 320.40, open interest (all contracts) hardly moved. It rose 1650 contracts or 1.12% from 147,670 to 149,320. This past week, as Gold has fallen from $US 320.40 to $US 317.00, open interest (all contracts) has risen almost tenfold. It is up by 15,160 contracts or 10.15%.
As of September 10, "speculators" were 1.76:1 long while the "commercials were 2.22:1 short. Over the week from September 3, "speculators had increased their long positions by about 50% while their short positions were up about 9%. The "commercials had decreased their long postions by just over 20% while increased their short positions were up by about 11.5%.
In this context, the relative impact of these two categories are what counts. Speculators and commercials hold about the same amount of long positions. But the commercials hold more than FOUR TIMES as many short positions as do the speculators. Don't forget, this is as of September 10, when Gold was showing its first signs of "weakness" after having risen steadily for more than two solid weeks.
Finally, there is the performance of the paper markets, notably the $US, over the week. On September 12, the U.S. current account for the second quarter of 2002 came out at MINUS $US 130 Billion. The first quarter deficit was MINUS $US 112 Billion. It was also announced that over the first half of 2002, direct foreign investment in the U.S. totalled $US 19.8 Billion. Double that and you have a total for all of 2002 of $US 39.6 Billion. Two years ago, in 2000, the full year total was nearly $US 250 Billion.
Yet with news of a ballooning current account deficit and collapsing foreign investment in the U.S., the $US Dollar ROSE. On September 13, the $US index rose 0.90 points 0r 0.84% to 108.06 - its highest level since August 23 - when Gold began its recent rise. Gold on the day fell by 0.72% - not quite the reciprocal but not far off.
By any rational expectation, the combination of a ballooning current account deficit and an implosion of foreign direct investment should have sent the $US plummeting and Gold rising - if not soaring. Instead, the opposite took place.
This week, Gold got close - to its 2002 highs - but then fell away again. We are in for more of the same - markets doing the exact opposite of what they could be expected to do - while the world is in limbo waiting for the U.S. to have their war with Iraq. We are waiting, that is, as long as the world is "in limbo". If the U.S. does not go "soon" - it is going to be very hard indeed to keep the world "in limbo". We watch, and wait.