As anyone with even the most desultory interest in Gold must have noticed, no matter how hard the winds blow and how high the waves rise on the surface of the world's financial system, the waters below remain calm and unruffled. Consider some examples of what is happening on the "surface".
World stock markets have had a very bad year indeed with three quarters of 2000 now gone. The damage has been especially severe in Asia, where almost all major markets are down 20% or more, the Thai and South Korean markets are down more than 40%, and the Japanese market hit a year 2000 low this week. Couple that with the crash dives of many Asian currencies against the Dollar, and the horrible state of the balance sheets of many Asian banks, and it is by no means far fetched to say that Asia is in the middle of another "crisis". The only difference (so far) between this one and the one of 1997-99 is that this one has not been acknlowledged by anyone, not even the Asians.
In Europe, the focus is on the common currency, the Euro, which has recently been "rescued" by joint intervention by all the G-7 Central Banks. In fact, Europe's economy is at least as robust as is the one in the U.S.. If economic "growth" in Europe and the U.S. were measured with the same yardstick, European "growth" would be higher. It is not, so it is not. And, of course, Europe has a hugely better balance on trade and current account than does the U.S.
Yet the European currency has been falling inexorably against the $US ever since its introduction nearly two years ago. The last time that the G-7 dived into the currency markets en masse to rescue a currency, the currency rescued was the $US. That event, in 1995, led to the huge bull market in the U.S.. Now, the G-7 has intervened to rescue the Euro. No one imagines that any similar even may happen in the European economy and stock markets in coming years. Instead, the consensus is that all that will happen is that the Euro's fall against the Dollar may be arrested, for a while. On the periphery, and especially after the Danes voted no to adopting the Euro on Sept. 28, predictions are surfacing that the Euro itself may not last.
In the U.S., government statisticians have recently admitted that they have been underestimating U.S. "inflation" over the past year. This was, of course, purely accidental. U.S. market analysts are now claiming that their earnings estimates for the third quarter were accidental too. They are not being met. The latest company to disappoint the street was APPLE. The result was a gut wrenching 52% sell off in its stock price over 24 hours.
U.S. markets remain stubbornly in the red for calendar 2000, an unheard of situation in a Presidential election year. The Clinton Administration has recently upgraded their budget surplus prediction for 2000 to $US 270 Billion. As of Sept 28, the year on year decline in Treasury funded debt was about $US 13 Billion. And for calendar 2000, the U.S. current account deficit can confidently be predicted to be DOUBLE what it was only two years ago.
All these developments, in Asia, Europe, and the U.S., would long since have scared any previous generation of investors into a catatonic fit. But so far, there have been few signs of any equivalent situation. Faith in the potentates of the world's financial system remains unbroken, although the strain is starting to show. Faith is a wonderful thing, contradictions don't worry the faithful. Take, as one of many recent examples, U.S. Treasury Secretary Summers' contention that the U.S. is still following a "strong Dollar" policy, despite the recent intervention. Of course, Mr Summers could not be expected to declare that he is now following a "weak Dollar" policy, could he?.
The biggest potentate of them all, Alan Greenspan, was recently quoted as having said "at some point, something has to give.". But Mr Greenspan was warning about "irrational exuberance" way back in December 1996. No one took any notice then. Few are taking any notice now. Everyone "knows" that the Fed won't let anything bad happen to U.S. markets or the U.S. Dollar. And everyone "knows" that NOTHING bad ever happens in the lead up to a Presidential election. What happens AFTER elections? No one is yet looking that far ahead.
In the long run, there is no substitute for knowledge. The adage that "ignorance is bliss" has lost more money than any other attitude. Believing that any situation, no matter how contradictory and absurd, can be "fixed" is the most dangerous "stand" that can be taken. Clinging to an outlook that it doesn't matter how bad things look, "they" will fix it is what has led to every governmental interference with the private lives and liberties of its citizens. The "Emperor" is flagrantly unclothed, and with every new storm on the surface of the financial system, his nakedness becomes harder to ignore. Yet still, it is ignored.
Given the rampant economic ignorance on the loose at present, and the even more pervasive refusal to see, there are not many events which could expose this nakedness beyond the capacity of most to ignore. One such event would be a crash dive of the U.S. Dollar. Another is a crash dive on U.S. stock markets. Another is a crash UP in the $US Gold price.
As was pointed out in the latest issue of The Privateer, a crash dive on U.S. markets was a clear and present danger last week. Because of that, the U.S. and the G-7 decided to prop up the Euro because weak European earnings was being blamed by many U.S. companies for the fall off in their earnings. A week later, the Euro has not crashed UP, it has merely stopped going down against the Dollar. And U.S. markets have not recovered, the earnings reports have simply gotten worse
But Gold remains quiescent, mired in the $US 270-280 range it has inhabited for more than two months now. As we said at the beginning of this Commentary, the more agitated the surface of the financial system, the more "tranquil" the action under the surface. This has been the case ever since July. We don't know how long it can continue. We do know that the contradictions become more glaring every day.