First things first: At its spot future close of $US 419.50 on October 1, Gold is at its highest level since April 12 - when it closed at $US 420.10. It is also the first time that Gold has been in the "black" in $US terms since April 12 - Gold began the year at $US 416.10.
Gold has only now made it back into the "black" for 2004 in $US terms for the first time in nearly six months. Given the fact that the spot future oil futures contract in $US terms hit $US 50 a barrel for the first time ever on October 1, and the fact that rumours have been swirling for over a week about a plan to "devalue" the US Dollar by (another?) 20% in the near future, one can only marvel at the "underperformance" of the $US Gold price thus far in 2004. In most ways, this "underperformance" greatly exceeds what was going on while Gold was slumping down into the $US 250s in August/September 1999 and again in early 2001.
"Underperforming", Gold may well be, not surprisingly considering the stakes involved and the vested interests concerned with keeping the Gold price down, but though the $US Gold price rise has been slow, it has also been very steady.
In this context, consider these facts:
Since the $US and Gold were finally and completely separated in 1971, there has been only one period in which the $US Gold price rose for four consecutive years. This was the first four years since Gold's divorce from the US Dollar: 1971-1972-1973-1974.
There have been three separate periods during which Gold rose for three consecutive years:
That's right, if Gold ends 2004 in the "black" - that is, above the $US 416.10 level at which it began the year - it will be the first four consecutive year upmove for Gold in $US terms since the four years which began when Nixon closed the "Gold window" in 1971, severing all ties between the world's reserve currency and the world's historical money. That first four year period 1971-74 marked the end of 38 years of Gold "price fixing" - the official level of $US 35.00 to one ounce of Gold which began by government "fiat" (Americans not being allowed to own Gold) with the passage of the "Gold Reserve Act" on January 31, 1934.
For Americans, the US Dollar has been a fiat currency for more than seventy-one years, since April 5, 1933 when President Roosevelt signed Presidential Executive Order 6102 which made it illegal for Americans to own Gold. For the world, the US Dollar has been a fiat currency for a bit more than thirty-three years, since August 15, 1971 when President Nixon severed the last link connecting Gold to the Dollar. Over the intervening period between 1933 and 1971, Gold was still "linked" to the US Dollar for the benefit of foreign governments and Central Banks only. And for most of that time, since the Bretton Woods agreement of 1944, the US Dollar used that increasingly fictional link to prop up its status as the world's sole "reserve" currency.
How "fictional" is it? Well, let's take just one example. In 1949, the year this writer was born, the US Treasury Gold reserve hit an all time high of about 700 million ounces. At the $US 35 per ounce ratio prevailing at the time, this Gold hoard was worth about $US 24.5 Billion. In 1949, US Treasury funded debt stood at about $US 253 Billion, 80% of which had been borrowed to fight WW II. Thus, in 1949, US Gold holdings representated about 9.7% of the Treasury's funded debt. In 2004, the Treasury's funded debt is $US 7,379 Billion. The Treasury's Gold holdings, which have not changed in Treasury reports for more than thirty years, stand at 263 million ounces. Valued at the (still) official ratio of $US 42.22 per ounce, this Gold hard is worth $US 11.1 Billion. Today, the Treasury's Gold hoard at its official valuation would pay off 0.15% of the Treasury's funded debt.
If the US Treasury "revalued" its Gold (as the UK's Chancellor Of The Exchequer wants the IMF to do) to reflect current market prices, then the 263 million ounces would be valued at $US 110.3 Billion. This is equivalent to 1.5% of the Treasury's funded debt. There are many problems with this, though, one of them being that if the Treasury was to revalue its Gold to reflect market prices, they would also have to prove that they actually HAVE that 263 million ounces they have claimed to have ever since the end of the 1960s.
Another way of looking at Gold is this. In January 1980, when Gold briefly hit $US 850 an ounce, the US Treasury's funded debt was about $US 950 Billion. Today, with the Gold price still less than half the level it was in January 1980, the funded debt is 7,379 Billion. Yes, we know that this is only $US 5 Billion below the current ($US 7,384 Billion) Treasury debt ceiling, but Congress has just passed a "continuing spending resolution" designed to let the US government keep functioning - until November 20.
The first consecutive four year upmove on Gold in $US terms (1971-74) marked the demise of a functional Bretton Woods agreement as fixed exchange rates broke down and world currencies "floated" against each other in 1973. There is no "guarantee" that Gold will finish 2004 above where it started the year in $US terms, but if it does, it will be the first consecutive four year upmove since the dawning of the global fiat currency era. It may well also signal the beginning of the END of that era.
This week, Gold has risen to six month highs in $US terms, despite (or could it conceivably be because of) the fact that the G-7 nations (plus Russia and China) have met in Washington and despite (or could it conceivably be because of) the fact that the IMF/World Bank are meeting in Washington next week. It has also risen despite (or could it conceivably be because of) the fact that the US Presidential election campaign is in full swing with the first Presidential debate now having been completed.
Despite all the big smiles and the bonhomie exhibited for the cameras, despite all the platitudes and the bombast, every important participant at these meetings, including the ones from the US, know the REAL score. They know that "devaluation" (regardless of its magnitude) will not help the US to "compete" with the rest of the world because they know that the major export of the US, dwarfing all others, is US DOLLARS! They know that the world "growth" they love to praise is a measurement of nothing more or less than the amount of additional currency they can manage to pump out. They know that modern economic "growth" measurements have little if anything to do with the production of additional REAL wealth in the form of physical economic goods.
Above all, they know that the facade cannot be maintained much longer. They know that a situation in which the world's most internally and externally indebted nation supplies the world's "reserve currency" is a bald faced absurdity. They know that it is an equal absurdity to expect the rest of the world to keep on buying that nation's debt paper, especially in the face of requests to "devalue" the currency in which the debt paper is denominated.
Fundamentally, it does not matter whether $US Gold does in fact end up in the "black" at the end of 2004 and tack a fourth consecutive year onto Gold's rise in $US terms. These absurdities will remain absurdities in any case. If Gold does manage it, however, the fact remains that it will be the first time since the $US 35 = one Gold ounce fixed ratio was dropped in 1971 that this has happened. It would also be one more piece of evidence in the mounting pile which points to the conclusion that the "modern" (post 1973) floating currency era has reached its "use by" date.