Yes, the headline could refer to the fact that Comex spot future Gold has moved a grand total of $US 0.00 this past week, and it does, but that is only one feature of what we propose to examine. What is "on hold" is the global financial situation of the world in general and the US in particular. Consider the following points:
The US Congress must be the most supine since the one that greeted Franklin Roosevelt when he was inaugurated for his first term in March 1933. The "lame duck" Congress which has now risen for the year has carried on from where their predecessors (before the November 5 mid term elections) left off. They have rubber stamped Mr Bush's "Homeland Security" bill. More to the point in this context, they have absolutely failed to pass the spending bills which constitute the 2003 US budget.
The Congress has "agreed" to freeze US federal government spending at "2002 levels" until January 11, 2003. They have passed a "continuing spending resolution" to that effect, not being able to agree on any of the spending bills which must be passed before the 2003 budget becomes operable. This means, amongst other things, that NONE of the funding necessary to implement the recent bills passed by Congress - including the Homeland Security act - will be available until next year. This is potentially disastrous on many levels, not least in alleviating the budget crises presently being faced by many States. With no "federal matching" funds available, the States are on their own to raise taxes/cut spending at whetever level is necessary to meet their growing shortfalls.
US Treasury debt is ROCKETING upward. As of November 21, the Treasury "debt to the penny" stood at $US 6.333 TRILLION. This is up by $US 105 Billion since the end of fiscal 2002 on September 30. That Treasury debt increase of $US 105 Billion has taken LESS THAN two months. Even worse, the Treasury's debt level is now only $US 67 Billion below the debt limit. The debt limit was raised - by $US 450 Billion to $US 6.4 TRILLION - on June 30. In less than five months, 85% of that new limit has been used up.
On average, US money market funds now have a net (after the expenses involved in participation in the fund) yield of 1.05% - the present Fed Funds rate is 1.25%. In REAL terms, this yield is negative, which is one of the reasons why Americans are desperately getting back into the stock market. One remarkable statement made by a "market professional" sums the situation up: "3% or more is taking on a significant amount of risk.". This states, in effect, that anyone who wants to preserve the purchasing power of his or her capital in US debt markets is "taking on significant risk". More and more Americans know it, and are thrashing around fearfully looking for what they used to take for granted - a "riskless" return on investment. They can no longer find one.
For the second time in two weeks, Fed Chairman Greenspan has seen fit to assure his fellow Americans that the Fed's ability to "stimulate" the US economy is not confined to interest rate manipulation. In an appearance before the Council on Foreign Relations, Greenspan said this: "The general view is that, as the Fed funds rate gets closer and closer to zero, that at zero we are out of business. That is not the case."
Mr Greenspan went on to point out that the Fed could buy Treasury debt paper of various maturities to pump cash into the system. True, any Central Bank can do that, it is otherwise known as monetising the debt. The problem is that, historically, any Central Bank which HAS done it has laid the groundwork for a crash dive in the currency. Mr Greenspan has not chosen to dwell on that. Neither has Wall Street. On the day (Nov. 20) when Mr Greenspan made those comments, the Dow rose 149 points. The next day, it rose 222 points. Ironically, a lot of the capital needed for this stock market rally was pulled straight out of the Treasury markets, where Treasury debt yields (except at the very short end) rose alarmingly.
Finally, we have another Fed Governor, Mr Bernanke, giving a speech to the National Economists Club in Washington on Nov. 21 entitled: "Deflation: Making Sure "It" Doesn't Happen Here". Naturally, speaking to a club of "economists", Mr Bernanke defines "deflation" as: "... a general decline in prices, with emphasis on the word 'general'.". What deflation actually is, as any ECONOMIST knows, is a decline in the quantity of MONEY. In a financial system whose "money" is totally credit-based, deflation can and dues occur when outstanding debts are either repaid or defaulted upon. This is something that neither Mr Bernanke nor his boss Mr Greenspan would dream of discussing in public, but it is something that is scaring them GREEN in private.
In the present US financial climate, those who can are paying off debt. But the vast majority are facing a situation in which any worsening of the present situation would tip them into a position where they could neither service nor repay their present debt load. THAT situation WOULD be deflationary, and THAT situation is the one that the Fed is gearing up to combat by ANY means available.
Right now, they have successfully set up a "holding pattern". The stock market recovery is still going. The US Dollar has recovered from its near 2002 lows of two weeks ago. Gold is dead in the water. But the REAL strains underneath this seemingly placid surface are acute, and cannot be sustained.
Last week, the spot future Gold price fell $US 5.80 on November 13 as the large (commercial) investors on the Comex piled on the shorts. They didn't keep them long. This week, short interest has again declined as Gold spiked $US 3.30 in the last two hours of trading on November 22 as investors decided they didn't want to be exposed on the short side in the leadup to the Thanksgiving holiday next week. The Gold "holding down" operation is being strained to breaking point. All we have to do is wait.