On June 2, the (spot future) Gold price spiked $US 8.40 from $US 273.00 to $US 281.40. It then climbed as high as $US 294.30 on June 28, before beginning the long drawn-out sag we have been suffering for the past six weeks. Now, Gold has fallen all the way back to where it was at the beginning of the latest price "spike" and is less than $US 2.00 above its year 2000 low - $US 270.70 (spot future close) set on May 25.
The catalyst for $US Gold to move up in June was a fall on the $US Index, which had been rising strongly throughout the year. The catalyst for Gold's sag of the past five weeks has been a rebound of the $US Index, which has now recovered nearly all of those June losses.
There are no outstanding reasons for this comeback by the U.S. Dollar. Trade and current account deficits continue to set records by the month, and even Mr Greenspan himself is on record as saying that this state of affairs cannot continue indefinitely. U.S. investment markets have been less than inspiring. The Nasdaq has recently slumped again, and has NOT recovered from its April meltdown. The Dow has been trading sideways for months, and is about in the middle of its trading range for the year. Treasury bond yields remain inverted, as they have been ever since February. T-Bill yields are around the 6.20% level.
But as we explained in the current issue of The Privateer in a section titled "Financial Appeasement", there remains a huge global vested interest in keeping the U.S. Dollar strong. In the U.S. itself, the vested interest is in keeping the U.S. economy, and especially the U.S. stock markets "strong". This is bi-partisan. The Republicans don't want the market to crash. One of their central platform "planks" is shunting Americans' retirement money out of the Social Security "trust fund" and into the stock market.
And now, with the Republican Convention having ended and the Democratic convention to begin in LA on August 14, it is politics uber alles in the U.S. from now until November. That is, unless the Fed decides to rain on both their parades by raising interest rates on August 22.
No, not yet. And here, we are not talking about the fact that Gold is still above the multi-year lows in the low $US 250s it reached in August 1999. We are talking about the momentous events which have taken place since Gold reached those multi-year lows. Consider what has happened:
There was one of the biggest stock market boom and busts of all time, the Nasdaq ride between October 1999 and April 2000. Then there were quantum leaps in commodities of (almost) all descriptions, which occurred at the same time as the Dollar was rising. Notable amongst them were the skyrocketing price of Oil and the ballistic leap in the price of Platinum and Palladium. U.S. Treasury yields inverted in early February, shortly after the Dow hit its mid-January high, and remain so today. An inverted yield curve has always been an infallible signal of a coming recession.
All of these events, to which can be added the Fed's six rate rises (so far) and the invincible trade and current account deficits, are tailor made to trigger a rise in the price of Gold. And they have triggered a rise in the Gold price, in fact they have triggered THREE. There was the one in September 1999, the one in February 2000, and the one in June 2000. None lasted.
Or should we say, none lasted in $US terms. As you can see by looking at any of the "foreign currency" Gold charts, the story is very different in terms on non $US currencies.
With the June Gold spike now (almost) having returned to its starting point, examine what has taken place. First, open interest on the Comex is down to levels not seen since 1993 (the last Gold bull market). Even with the increase in open interest on Friday (see above), the total is not much more than half of what it was when Gold was languishing in the $US 250s last August.
Second, and even more interesting, is the performance of Gold stocks, specifically non-US Gold stocks. Taking the Aussie Gold stocks as an example, the situation is redolent of that of early 1993, just before the last Gold bull market. With $US Gold now back to its late May levels, the Aussie Gold index is almost 15% above its late May levels. In this context, it should be stressed that Aussie Gold stocks reacted to the Gold spike of last September, but fell even faster than the Gold price. They hardly reacted at all to the Gold spike of last February
Yet not only have the Aussie Golds reacted to the Gold price upmove in June, they have not given back ANY territory since, despite the fact that $US Gold has been falling for five straight weeks. This cannot be sheeted home merely to "takeover speculation", although that is certainly an element this time.
Aussie Gold stocks are popular with Asian and European investors. These investors have clearly been anticipating higher Gold prices for two months now. They have not (yet?) been deterred by the $US Gold price fall. And they have been rewarded with some excellent gains in individual Aussie Gold (and base metal) stocks. This is a carbon copy in all respects of what happened in early 1993.
It is a fascinating situation. There's no denying it, the $US Gold charts look shaky and are at critical support levels. On the other side, we have indisputable proof that many non-US investors are expecting an upmove on Gold - soon. The last time they did so, they were proven right.