As you can see on the chart above, Gold dropped from a pleasant and unassuming $US 401.00 (spot future close) on Thursday, March 11 to an "annoying" sub $US 400 $US 395.60 (spot future close) at the end of the week on Friday, March 12
Back below $US 400 - BUT - take a look at the charts of Gold in the other major currencies we cover - Aussie Dollar Gold, Yen Gold, and Euro Gold.
Of the three, the most striking is the Aussie Dollar Gold chart. In Aussie Dollar terms, Gold is up quite healthily ($A 10 plus) on the week even with the Friday fall. More interesting by far is the WIDE double bottom on the chart, indicating a SOLID support point. In Yen terms, Gold is challenging multi-year highs. In Euro terms, Gold has had its first break to the upside in months on the point and figure chart.
Gold hit its 2004 $US high (spot future closing basis) of $US 426.80 back on January 9 - just before a series of international financial meetings which began with the G-10 meeting in Switzerland in mid January and ended with the G-7 meeting in Florida in early February. Over this period, even as the US Dollar (as measured by the $US index) continued to fall - the $US Gold price was driven down from the high $US 420s to below $US 400. Since the Dollar was falling too, Gold was REALLY driven downstairs in terms of other major currencies. These included the three mentioned above, although Gold's fall in Yen terms was "cushioned" due to the ongoing Japanese Dollar buying operation.
The $US index bottomed for the year (so far?) on February 17 at 85.12. That was ten days after the G-7 meeting in Boca Raton, Florida. What happened next was a $US index "resurgence", powered by everything from European banks selling Euros for Dollars on the forex markets sparking rumours of ECB currency intervention to out of the blue Japanese "security alerts" with no reasons given. The $US index closed on March 12 at 89.09 (spot future basis), only 0.13 points below the 89.22 2004 high set on March 4.
Since Gold hit its 2004 high in $US terms of $US 426.80 on January 9, it has fallen 7.31% in US Dollar terms. Over the same period, Gold has fallen 3.67% in Yen terms, 2.35% in Euro terms, and a mere 1.89% in Aussie Dollar terms. In other words, Gold has been most "unstable" in terms of the currency which the world still associates with Gold and that currency is the US Dollar.
Now, let's take one more item of interest. On January 9, the day when the $US Gold price (spot future closing basis) hit its 2004 high of $US 426.80, the $US Silver price closed at $US 6.49. On March 12, $US Gold closed at $US 395.60 while $US Silver closed at $US 7.05. While $US Gold has been falling by 7.31%, $US Silver has been RISING by 8.63%.
To put this in perspective, had the percentage rise in Gold equalled the percentage rise in Silver since Gold hit its 2004 high on January 9 (and for much of its bull market, Gold has been outperforming Silver on a percentage basis in $US terms), Gold would have closed on March 12 up 8.63% from its January 9 close of $US 426.80. That would have put it at $US 463.60 on March 12 instead of its actual close of $US 395.60.
As you are probably aware, the $US price of most basic commodities, notably metals, has SOARED over the past six weeks or so. So severe have these price rises been that the February US Producer Price Index (PPI), which was scheduled to have been announced on March 12, has been "postponed". This is the second postponement of a US PPI in a row. The US PPI for January was due to be announced on February 19. It has not been announced. Clearly, the US financial "powers that be" are finding it impossible to "translate" the price rises in raw resources into anything resembling a price inflation "neutral" number. They cannot announce the "real" PPI because the Fed has intimated strongly that they are going to hold US rates at their present 1.0% level until after the election in November and probably until 2005.
This "vanishing" PPI illustrates the IMMENSE pressure building up in the global financial system. Given the financial position of the US, an official interest rate of 1.00% goes far beyond the ridiculous into the surreal. Were any other nation to exhibit the debt levels and interest rates currently on show in the US, that nation's currency would long since have vanished off the bottom of the radar screens of the currency traders.
Consider the "policies" of the Bush Administration, and the cost of those policies. Consider the US political establishment and their complete dependence on these policies being enforced and even intensified. Consider that the maintenance of a viable currency and an unbroken ability to borrow is absolutely ESSENTIAL for the existence, let alone the furtherance, of these policies. Consider all that, and you will comprehend the size and nature of the stakes on the financial "table". The US establishment needs a viable currency to perpetuate their power. They are and will continue to fight to the (figurative) death to maintain the Dollar. Without the Dollar, they lose their power. And without their power, they cease to exist as a viable political entity.
Gold as money and political POWER are mutually exclusive items. If you doubt it, ask yourself if the US Treasury could have increased their funded debt from $US 400 Billion when Gold was divorced from the Dollar in 1971 to its present level of $US 7,100 Billion. Ask yourself if the US government could be running an ANNUAL budget of nearly $US 1.5 TRILLION. Ask yourself if the US trade deficit could have blown out to more than 5% of US GDP. In 1971, the US trade deficit was less than ONE TENTH of its present relative level at 0.5% of US GDP.
The stakes are HUGE. Gold is being repeatedly "put back in its box" in $US terms by slipping below the $US 400 level. The BIG feature of the $US rebound of the past month, however, has been a strengthening of Gold in terms of all other major currencies. As we have repeatedly stated on these pages and in The Privateer, the REAL Gold bull market will get going when Gold starts advancing in terms of ALL currencies. Right now, there is only one in which it is NOT advancing. That currency is, by ALL rational and finanancial measures, the weakest major currency in the world today, the US Dollar.