Last week, we talked about the ratio between the $US Gold price and the $US index. We pointed out that unlike the spot future $US Gold price, the $US Gold/$US index ratio had not yet climbed above the peak it set last December. Here's what we said at the end of our report last week:
"But whatever the $US Gold price level required to surpass the old December 2004 highs on the $US Gold - $US Index ratio - when it happens - it will be THE signal of the next extended stage of the Gold bull market. Please note - not the $US Gold bull market - but the GOLD BULL MARKET PERIOD. The period during which Gold rises against ALL world paper currencies."
To judge just how well this new "Gold against ALL paper currencies" bull market is progressing, here's a table showing Gold's performance in ten major world currencies (including the $US, of course). The period analysed is the month between August 30 and September 29, 2005. The start of this period was the day after Katrina hit. The end of this period is the high point in the $US Gold bull market - so far:
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The Privateer has made no difinitive comparison, but we would be VERY surprised if this is not the best month for Gold since the $US Gold bull market began back in early 2001. If you were to annualise the weakest of the Gold performances above on a linear basis - the 6.83% rise against the South African Rand - you would get a one year increase of just under 82%. Only in the early and late 1970s did Gold do better than that. There's no two ways about it, September has been a rip snorter of a month for Gold. Silver hasn't done too badly either. Over the same period as shown in the table above, the $US Silver price is up 12.86%.
The other point to note here is that the more a currency is regarded as a "commodity currency", the weaker Gold's comparative performance against that currency. Note that the three major world commodity currencies, the Aussie Dollar, the Canadian Dollar and the South African Rand are eight, nine, and ten on the table. And, while not regarded as a "commodity currency", the US is a major Gold mining nation too. It ranks as number seven, although the major reason for that remains its status as the world's reserve currency.
Here's another measure, this time of the performance of Gold stocks over the same period - August 30 to September 29. We'll take just three indexes this time: the HUI and XAU in the US and The Privateer's "XGO" measuring the performance of Aussie Gold stocks:
US HUI - UP 24.94%
US XAU - UP 22.52%
Aussie XGO - UP 21.43%
Again, very healthy figures. All the indexes show percentage rises well over double the rise in the Gold price in their respective currencies. The XAU has poked its nose about half a point above the previous bull market high it set way back in December 2003. The Aussie XGO is about 2.2% below the bull market high it set in November 2004.
Congruent with all this new-found buoyancy in Gold (and Gold stocks) has come the usual cavalcade of caveats. These have, predominantly, come from major investment and broking houses in the US. The message is along the line that Gold is "overbought", that it is too late to jump aboard now, that Gold is due for a "correction", and that the only thing that pushed its price up in the first place is the oil "shortage" and the twin hurricanes. We haven't seen anything along these lines from the Aussie financial media, but the Aussie financial media have never seen Gold as a "threat" to their favored products. Besides, unlike the US markets, the Aussie stock market has been setting new records for the entire month. And there haven't been any hurricanes (we call them cyclones) recently in Oz either.
Of course, the reason that Gold is going up in terms of all paper currencies is the reason that Gold ALWAYS goes up against paper currencies. It is the reason why Gold has been going up against paper currencies ever since there have BEEN paper currencies. As confidence in the future purchasing power of the currencies (ALL the currencies) declines, demand increases for an alternative, a medium which will NOT lose purchasing power because it is NOT subject to the same manipulations as are the paper currencies. Try as they might, the money manipulators have never been able to conjure up Gold out of thin air, any more than they can build adequate levees by signing a "check" for $US 50 Billion (or $US 50 TRILLION for that matter).
The world is moving inexorably towards the re-discovery of a long buried economic truism. That truism is simply that money is NOT wealth. It is merely a medium of exchange, a means to hugely improve the method by which wealth is exchanged. The advantage of money lies in the fact that the possessor of it can exchange it for any form of wealth desired, at any time they choose, with anyone who owns the goods they wish to buy.
In the long run, the only form of money which can do these things is one which as been observed, over a long period of time, NOT to have lost its purchasing power. It is this, and only this, which gives confidence in the money and allows it to perform its vital function. Economic history is littered with the corpses of "moneys" which failed this test. All failed it because the integrity of the unit of money was not upheld and its quantity was expanded by "uneconomic" means. A unit of economic wealth is an economic GOOD. Any economic good must be produced. It must be be dug up and refined, or grown, or constructed, or created as an existing entity in the case of a painting or a novel or a treatise or the score of a symphony.
If a unit of money (an ounce of Gold, for example) is not produced in the same fashion as a unit of any other economic good or item of real wealth, if it is given "existence" by fiat and "produced" by the addition of some numbers to a ledger, then its days of functioning as a MONEY are numbered. There has never been an exception to this in history. Nor, given the NATURE of money, will there ever be an exception to it.
One of the most tragic aspects of the last three millenia is that this lesson has had to be re-learned so many times. The world is on the threshhold of re-learning it yet again. That is why Gold has had such a good month - in terms of ALL global paper "moneys".