"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."
Gold Commentary: Sept 29
Since the G-7 intervention on September 22, here's what has happened. The Fed met and did what everyone expected them to do, they left interest rates alone. The ECB (European Central Bank) met and did what few expected them to do, they raised rates by 0.25%. The Euro, which was the object of the intervenion exercise, staged a very short-term "recovery" and is now subsiding ominously again against the Dollar. And Gold has been sliding slowly but surely in $US terms, on desultory volume, with very low levels of open interest. The spot future close on Oct. 6 was a low for the year, $US 0.40 below the previous low close set on Sept. 20 - two days before the intervention took place.
As we reported in the Late September issue of The Privateer, the surprise G-7 currency intervention was preceeded (by one day) by the first of what has now become a litany of bad profits and earnings forecasts and results from U.S. companies. Intel reported that third quarter earnings would be up to 33% below street estimates and duly saw its stock savaged by 20%. The reason, according to Intel and almost all the companies that have followed it (Gillette, Apple, Xerox, Dell, etc. etc.) has been low European sales brought about by the low Euro.
So, the Euro had to be pushed up. So, all the G-7 Central Bankers got together and attempted to do just that. So far, the results have not been what they might have wished for. The Euro has merely stopped falling. Worse, U.S. stock markets have NOT stopped falling.
In the midst of all this, Gold has been shunted firmly off the stage. Not at all surprising, when you consider the fact that the very LAST thing that anyone in the U.S. financial establishment (or anyone elses financial establishment) wants people to look at is the Gold price when they are trying to manipulate the exchange level of the world's Reserve Currency.
Thus, the attempt is being made to assure everyone that it is "business as usual". Treasury Secretary Summers was still insisting that he maintained a "Strong U.S. Dollar Policy" even while he was contributing to the intervention. Since then, he has not been heard from. And the Fed was certainly not going to do anything to draw attention to themselves, so they unanimously decided to do nothing when the FOMC met on October 3.
The first of three Presidential "debates" is now history. the VP candidates have had their one and only face to face square off. Still, according to the polls, it is too close to call.
One thing that is not too close to call is the fact that the central girder supporting the platform of BOTH major parties is the continuing economic "prosperity" of the U.S.. The Democrats and the Republicans differ on how they want to spend all the money flowing into government coffers as a result of this "prosperity". Neither party contemplates for a second the possibility that the "prosperity" might be fraying at the edges.
As far as the people who will decide between the two candidates on November 7, "prosperity" means only one thing. It means a buoyant stock market. Unfortunately for both Mr Gore and Mr Bush, it is getting harder and harder to pretend that the U.S. HAS a "buoyant" stock market. The currency intervention was meant to prop up the Euro so that the stock market could look into the future and bet that the foreign earnings of U.S. companies would improve. The Euro has, if not improved, at least stopped deteriorating, but U.S. markets have not. They are still going down.
If the strain goes on for long enough, there will be a point as there always has in the past when market participants start to doubt that "they" can fix it. We are not at that point yet, few can conceive of any major disruption to U.S. markets in the final weeks of the campaign, but unease is palpably growing. In these circumstances, and as has been the case during every episode of financial strain since the mid 1990s, the $US Gold price is falling. Nothing spectacular this time, just a slow even drift downwards.
Now, Gold is at a critical level in $US terms. The $US itself is at near critical levels in Euro terms. U.S. stock markets (especially the Nasdaq) are approaching critical levels. And with a month to go, the election itself is on a knife edge. In this situation, if Gold "recovers" from here and maintains itself inside the $US 270-280 trading range it has been in for nearly three months, then all the financial balls will probably stay successfully in the air until the election. If Gold does NOT "recover", and either drifts lower of spikes higher, then the signal is in that one or more of the "balls" have been dropped. We await developments. Watch this space.