The title of our main Gold commentary last week was "Over The Brink". Here's how we started off that commentary:
The five highest Comex spot future Gold closing prices for 2002 - so far - are as follows:
Now, let's update those figures for this week:
The five highest Comex spot future Gold closing prices for 2002 - so far - are as follows:
That's right, all five 2002 closing highs took place over the trading week just ended. We continued last week by reproducing the chart which, beyond all the others we present on these pages, shows both the potential for this Gold bull market and the fact that we are now only in the very early stages of it. Here's an update of that chart:
Looking at this chart, "blind freddie" could see the fact that the MAJOR downtrend line for Gold, the one anchored on Gold's all time high spot future close of $US 850 in January 1980, has been terminally BROKEN. Please keep in mind that this chart covers almost the entire history of Gold trading since Gold and the US Dollar were uncoupled in 1971. It DOES show the entire history of Gold trading since Americans were once again legally entitled to own Gold at the beginning of 1975.
Now, consider the glorious "wall of worry" which the Gold price is climbing at present. This is redolent of investor attitudes to stocks in late 1982/early 1983, at the very beginning of the HUGE bull market which topped out in early 2000. Over the past week, and especially after spot future Gold's $US 5.40 drop on Friday, December 20, we have read lengthy discussions over whether the metal has now "topped" combined with just as lengthy discussions over whether Gold is actually yet in a "real" bull market.
Please note, at its spot future close of $US 345.90 on December 19, Gold had risen $US 90.30 from its April 2, 2001 low of $US 255.60. That's a rise of 35.33%. Even with this, there is still much talk about whether the fact that Gold has "bottomed" is yet proven.
Consider the Dow in this context. The 1982 bottom on the Dow (closing basis) was 776 set on August 12. A 35.33% rise on the Dow (commensurate with Gold's rise since April 2001) would increase the level of the index to 1050. The Dow reached 1050 in late December 1982 amid much nervousness on Wall Street. After all, the Dow at the time was once again trespassing against a level (1000 points) which had held it at bay for the previous 16 years - since 1966. Of course, the Dow went on to reach 2722 in August 1987 before the October '87 crash; 3978 in February 1994 before pausing for breath during the Fed rate rises of that year; and 11723 at its bubble top in January 2000. In terms of the full Dow bull and bubble market of 1982 - 2000, the initial rise from 776 to 1050 in late 1982 hardly registers.
Now, please do not read into this analysis any assertion that Gold is in the first stages of embarking on an eighteen year bull market like the Dow had between 1982 and 2000. We simply try to make the point here that ALL bull markets begin in an atmosphere of trepidation and fear. The fact that Gold stocks actually FELL this week, the fact that we have seen countless admonitions to lock in some profits NOW (in the Gold or Gold stock markets) "just in case", and the totally disproportional "disappointment" of Gold's fall on December 20 all point to a single conclusion. THIS BULL MARKET IS JUST GETTING STARTED.
How could it be otherwise? 2002 is shaping up as the first year since 1988 (the year after the 1987 crash) when investors have actually taken money OUT of US stock mutual funds. The US Dollar is at 2002 lows, having broken below its post 1995 uptrend. The US is facing the necessity to "finance" its twin trade and current account deficits to the tune of $US 2 Billion or so per DAY while at the same time presenting precious little in the way of palatable investment opportunities to foreigners. And, of course, there is debt of all descriptions - corporate, individual, government - which is still growing at near record speed - ESPECIALLY debt of the government variety.
All of this is perfect fuel for the Gold bull market. The fact that the Gold bull market is still in its formative stages, and that Gold is climbing its "wall of worry", is testament to the fact that few in the investment community yet understand the dimensions of the threat now overhanging the global financial system.
Some do understand the threat. Alan Greenspan has illustrated in his latest speech a growing desperation to "justify" the system he is in charge of. And there are many out there who are making the case that Gold is in fact at the beginning of a bull market, with MUCH further to go yet.
The government and central bank orchestrated suppression of Gold has been going on for decades. The much ballyhoed intensification of this suppression which began in the last half of the 1990s is merely a continuation of this policy. What needs to be recognized is the reason WHY government resorts to suppressing Gold.
To be blunt, government suppresses Gold for the same reason that the East Germans - under orders from the USSR - built the Berlin Wall in 1961. This was not done to keep people out - it was done to keep them IN - inside the system which the East German powers that be needed to exist, that is.
In 1961, the escape route from Communism was to cross over from East to West Berlin. In all history, the escape route from a government-controlled fiat monetary system has been to cross over from cash/stocks/bonds/futures/etc to investments NOT reliant on government controlled money. That escape route has always led straight to Gold. The process of government Gold suppression over the past 40 years has been straightforward. As the perceived risk of remaining inside the financial system grew, the efforts to close off all escape routes from that same financial system grew apace. Now, as the risks become impossible to either ignore or cover up, the exodus is gathering some momentum.
The "wall of worry" which Gold is now climbing, specifically as it applies to "gold bugs", is simply a recognition of the past success of the powers that be to control Gold. Having been "burned" repeatedly by that control over the past decade or two, they are understandably wary.
Take another look at the long-term Gold chart above. Technically, this is a once in a generation formation. Much more than the stock market swoon of the past three years or even the Dollar weakness of 2002, it is telling us that business as usual in the global fiat system is grinding to an end. Those who do not take steps to protect themselves now, in the face of all the evidence, will regret it in future. Sadly, most of them probably never will.
To you and yours, a very Merry Christmas. There will be one more Gold This Week update for 2002 - next weekend. Then, it's on to 2003.