Two weeks ago, the title of this commentary was "So Near - And Yet". Last week, the title was "On The Brink - Let Us Count The Ways". This week, Gold "got there", and then fell back again. On September 24, spot future Comex Gold hit an intraday high of $US 328 and closed at $US 326. The 2002 high is intraday high $US 329.70 - close $US 327.80 - both set on June 4.
In the midst of a frantic preparation for war, in the midst of a three year stock market meltdown, in the midst of an economy and financial system which is clearly on the brink of catastrophic implosion, Gold is NOT supposed to break loose into a rampant bull market. It has not. After peaking at $US 326 on September 24, Gold spent the rest of the week retracing its advance to close on September 27 at $US 319.70, a fall of $US 2.50 on the week.
Saying that Gold is "not supposed" to break loose in this situation has nothing to do with any type of rational economics or market system of finance, it has everything to do with preserving the financial and economic status quo. And preserving that status quo has become the TOP policy issue of the Bush administration, as witness "The National Security Strategy of the United States of America" - released to Congress on September 20 - and reported upon in the Late September issue of The Privateer.
In the week since that report was issued, the questioning of that "security strategy", both outside and INSIDE the United States, has grown enormously. One of the main reasons is that the claims being made by the Bush Administration regarding Iraq are being increasingly exposed as being, to put it politely, riddled with "terminological inexactitudes". To give one example, President Bush has cited a 1998 report prepared by the IEA (International Atomic Agency) as evidence that Iraq was "six months away" from developing a nuclear weapon. Don't forget, this report was said to have been prepared in 1998. The chief spokesman for the IEA, Mr Mark Gwozdecky, speaking from Vienna, has stated that no such report exists .
Then there are the completely unsubstantiated (to put it mildly) claims that Saddam and al-Qaeda are in cahoots. Then there is the claim that the war will "cost" $US 40 Billion, with no calculation even attempted of what the ongoing costs after the war is "won" will be.
The Bush administration has even managed to achieve what many had thought impossible, they have put the Congress "offside" and incited debate to arise even there. This is the same Congress which has been falling all over themselves to grant Mr Bush and his administration every power they sought ever since 9/11.
On the international front, neither France nor Russia nor China, all veto-toting members of the UN Security Council, is yet willing to go along with the latest UN resolution on Iraq which is being drawn up by the US. It may be recalled that when Mr Bush spoke to the UN back on September 12, his main bone of contention was the fact that Iraq had not complied with UN resolutions ever since the last Gulf War in 1991.
Ironically, the US itself introduced a resolution into the UN this week seeking to make Israel back off from attempting to completely destroy Chairman Arafat's headquarters. The approval of this resolution was unanimous - with the US abstaining. Israel has not complied. There are no reports of the US planning to mount an attack on Israel to force compliance with UN resolutions.
In sum, the Bush administration's posture towards Iraq is being seen by more and more people, both outside and INSIDE the US, as a drive towards war on the most flimsy of "evidence" simply for the sake of having a war. And when a nation wants to go to war - no matter what - it is a VERY good bet that there is something that they want to distract attention away from. That "something" is, of course, the state of the US economy and financial system.
On the evidence, the distraction is slipping. Gold ALMOST broke free this week. As it was doing so, on September 24, the Fed met and sat on their hands and the Dow hit a new 2002 low of 7683 points. Treasury bond yields are at levels not seen since the 1950s. The latest beneficiary of IMF "assistance" - Brazil - has seen it currency fall more than 67% against the $US and more than 84% against the Euro so far this year. The Brazilian election is on October 6, and after that, the chances of a sovereign debt default are HUGE.
Inside the US, the stock price of JPM (JP Morgan Chase) is mired BELOW the $US 20.00 level, the level below which the GIGANTIC JPM derivative mountain is said to be in danger of toppling over. This derivative mountain, at the latest estimate we have seen, amounts to $US 26.3 TRILLION - over HALF the derivatives held by all financial institutions in the US.
As you know, US stock markets "recovered" on Wednesday and Thursday (Sept 25-26) in what most commentators dismissed as the usual Wall Street "book squaring" rally at the end of the month to try to make their monthly statements as palatable as possible. The thing that was NOT supposed to happen was that this rally would crumble BEFORE the month was over. But it has. On Friday, September 27, the Dow swooned by 295 points. With one trading day left in September, the Dow has lost 962 points or 11.1%. This is the SIXTH losing month in a row for Wall Street - and that's not "supposed" to happen either.
The entire situation, financial, political, and geo-strategic, is indeed on the brink. The Bush Administration is DETERMINED to go to war in Iraq. It is running out of time and is facing ever increasing headwinds. The US, in keeping with the doctrine spelled out in "The National Security Strategy of the United States of America", is determined that no one will EVER challenge their global military superiority. A pre-requisite for that military superiority is global FINANCIAL superiority. That is the one that is GENUINELY on the brink.
Gold "almost" made it this week. The Gold charts have improved, despite the pullback after September 24. Please remember what we say in the introduction to these weekly analyses: The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."
Global "faith" in the viability of the post war US dominated global financial system is being shaken to its foundations. Gold remains poised. But please realise that if Gold DOES break loose, it will be THE signal that the entire global financial, political, and geo-strategic fabric of the post WWII world is about to be ripped right down the middle.