As you can see from the data above, spot future Gold closed at exactly $US 450.00 on Friday, September 9. This is a new closing high for 2005 and the first time that Gold has closed at $US 450.00 or higher since December 7, 2004. As of now, Gold is only $US 6.00 below its bull market high (spot future closing basis). That high was $US 456.00, set on December 3, 2004. And that is a bit more than nine months ago.
So far, the $US Gold bull market has a history of setting new highs and then pausing for a considerable period before regaining the highs and going on to set new and higher highs. Consider the two major previous instances of this since the bull market got started in 2001.
On February 4, 2003, the spot future Gold price closed at $US 379.00. Gold didn't exceed that level for a bit more than seven months, until September 9, 2003 when the spot future close was $US 381.80.
On January 9, 2004, spot future Gold closed at $US 426.80. In April, it slightly exceeded that level for one day, closing at $US 427.80 on April 1. But the level reached in January and very slightly exceeded in April was not decisively taken out on the upside for almost ten months, until the spot future Gold price closed at $US 430.80 on November 4, 2004. A month later, the spot future Gold close hit what is still the high point in its bull market to date - $US 456.00 on December 3, 2004.
In 2003, Gold took seven months to take out a high set early in the year. In 2004, Gold took almost ten months to do the same. Now, in September 2005, Gold has been languishing below a high set in early December 2004 for a little over nine months. If the precedents set in 2003 and 2004 are anything to go by, Gold is due. Due to do what? Due to take out its bull market high of $US 456.00.
The difference in the $US Gold price this year as compared to the $US Gold price in 2003 and 2004 has to do with the US Dollar itself. In 2003, the $US Index fell by 5.83 points or 5.70% between the start of the year and September 9. The performance in 2004 was a bit better, with the $US Index actually managing a small rise - of 1.11 points or 1.27% - over the same period. This year, as you know, the $US Index has been rising. In sharp contrast to its performance in 2003 and 2004, from the start of the year to September 9, 2005, the $US Index is up by 5.89 points or 7.27%.
As you know, over the full year, the $US Index was down substantially in both 2003 and 2004. Over 2003, the $US Index fell 14.67% while the $US Gold price was up 19.50%. In 2004, the $US Index fell 7.17% while the $US Gold price was up 5.36%. To date in 2005, the $US Index is UP 7.27% while the $US Gold price is also UP - by 2.65%. Given the recovery of the $US this year, Gold has performed better than it did in either 2003 or 2004 - and the year ain't over yet.
What also ain't over, in fact it has not yet begun, is the ECONOMIC AND FINANCIAL fallout from the aftermath of Hurricane Katrina. The political fallout is almost off the scale of the counters already. Given the "performance" of the principals to date, that is only to have been expected. The performance has been vintage. First, claim that the consequences of your actions (or inactions) could not possibly have been foreseen. Having done that, throw money at the problem. Praise the individuals you are directly responsible for and "damn with the faintest of praise" all others - hoping to deflect the blame to them and away from you.
All this has worked wonderfully well, so far, on the financial MARKETS. The entire world's strategic reserve of refined petroleum has been dumped on the markets so the oil price is actually DOWN. Wall Street is looking at the low oil price and not the reason for it. They are also looking at the possibility that the Fed will stop raising rates and ignoring the reason for THAT. And finally, they are looking around at all the juicy contracts to rebuild the Gulf States, and ignoring the destruction of REAL WEALTH which has taken place. This week, the Dow had its biggest weekly rise since May and the US Dollar recovered some lost ground. Treasury yields did stop going down this week, but they didn't go up much either.
We cover the REAL (and unsupportable) COSTS of the Katrina disaster, and the policies which made them so much bigger than they would otherwise have been, in the mid September issue (#535) of The Privateer - published on September 11. In brief, the US has become economically poorer - in terms of REAL WEALTH - by an official $US 125 Billion. No amount of borrowing and spending will replace this loss, only REAL production based on REAL savings can do that. The US is bereft of both. On paper, the US is the richest nation in the history of the world. But "paper" will not rebuild a city or repair and refurbish a national infrastructure or reimburse an individual or a family who has lost their worldly GOODS.
What is now lurking just below the horizon in the US is a re-awakening of a fundamental truth regarding the difference between MONEY and WEALTH. Once that re-awakening reaches a "critical mass", there will come another realization. That one is deadly to the present fiat credit money system. It is simply that the purchasing power of a money does not depend on the ability of a government or a people to borrow and spend. It depends on the production of REAL GOODS which in turn depends on the availability of REAL SAVINGS in the form of unconsumed REAL GOODS.
That is a system which can only operate and flourish on the basis of a STABLE money which RETAINS its purchasing power. The only kind of money which can do that is one which CANNOT be created out of thin air by government fiat. Yep, that's Gold.
Many analysts are now calling for $US 500 Gold by the end of this year. Whether that happens or not, please remember this. For almost a quarter of a century, ever since very early 1981, Gold has traded in a very wide band. The top of that band is just above the $US 500 level. The bottom is just below the $US 250 level. It has taken Gold four and a half years to go from the bottom of that band to within $US 50-60 of the top of it.
Before the present Gold bull market began in 2001, Gold had spent more than three years (with a couple of short-lived exceptions) between $US 250 and $US 300. That was the bottom from which the present bull market has sprung. But the bigger "bottom formation" is between $US 250 and just over $US 500. That is the formation which has held Gold throughout the quarter-century period of rampant credit creation which brought about an era of financial asset price inflation instead of the real goods price inflation which prevailed in the 1970s.
Once Gold breaks through THIS "bottom formation", and it will, it will be on a launching pad fuelled by the crumbling of twenty-five years of economic, financial, and especially MONETARY delusion. The process was coming anyway, but Katrina has hastened it considerably. As the headline in the Mid September Privateer states: "The US Facade Has Washed Away".
The facade of the US Dollar is next.