On Monday, November 27, the spot future price of Gold rose $US 3.60 to close at $US 270.30, thereby breaking out of a frozen $US 2.50 (spot future closing basis) trading range in which Gold had been trapped for a month. On that day, the Privateer sent out a bulletin to our Subscribers and to those who had joined our mailing lists. This is what we said:
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On Monday, Gold will resume trading in New York after a four day hiatus. In times of financial strain in the past, such a "long Gold weekend" was often used as an opportunity to mount an attack on the $US Gold price. Given the present situation, the temptation must be great to do so again. It will be interesting to see if the U.S. establishment risks it.
As you probably know by now, Comex spot future Gold gained $US 3.60 on Monday, November 27 to close at $US 270.30. Of equal significance, the $US Index fell 1.45 points (118.45 to 117.00) on the same day. This Gold price move is significant for three main reasons: First, spot future Gold has now broken out of the $US 2.50 trading range ($US 264.40 to 266.90) in which it has been frozen ever since October 26. And, of course, the breakout has been UP - not down. Second, this breakout in the Gold price has come at the end of a "four day weekend". November 27 was the first time that U.S. spot future Gold had traded since Wednesday, November 22 - the day before the Thanksgiving holiday in the U.S.. On many occasions in the past, especially since Gold began to fall from the $Us 400 level in early 1996, "long weekends" have proved very bad for Gold. Often, the price has fallen significantly when trading resumed. That didn't happen this time. Third, Gold has done what one would "expect" it to do in the face of a significant fall in the $US. It has risen in $US terms. In doing so, it has reversed the situation which has held sway in Gold markets in recent months. For months now, Gold has been "stable" in $US terms. On November 27, it was stable in terms of other currencies while it rose in $US terms. A one day rise is not sufficient evidence of a pending "turnaround" in $US Gold. Having read our current issue, Privateer Subscribers will understand why this particular upmove on the $US Gold price is particularly significant. Spot future Gold has now broken back above the $US 270 level, albeit only just above it. The next step is to see if it can stay there. |
AS you can see from the data above, the $US spot future price did not "stay there". It close on Friday, December 1 down $US 1.40 to $US 268.70. But look more closely at the data. Notice that Gold was duly knocked back from its Nov. 27 $US 270.30 close, falling to close at $US 266.40 on Nov. 29. Note further that the price turned right around and climbed back above $US 270 the next day. And finally, notice the increase in volume and decrease in open interest over the week.
Looking strictly at the Gold price itself, there is only the most tentative evidence that anything has changed. Yes, Gold did manage to climb above $US 270, but it didn't stay there. Looking at the volume, we can see an increase in trading. Looking at the open interest, we can see that either more traders are not confident that Gold will stay at $US 270 and are cancelling longs, or that more traders are worried that it might go above $US 270 and are cancelling shorts. More to the point, the "active" Gold contract has now passed from December to February and there were an unusually large number of "delivery notices" on the December contract.
But to get an idea of what Gold might do, we need to look, not only at what other financial markets are doing, but at the entire political/financial situation. And here, things have changed.
Gold is the "political" metal because it is the only form of money which effectively blocks a political establishment from "running" an economy - and therefore a country.
Gold Commentary - November 24
The U.S. political establishment is in a fight to the finish. The ferocity of that fight is not best reflected in Mr Gore's repeated attempts to recount the Florida votes. It is best reflected in the fact that Mr Gore and the Democrats have not backed down in the face of the increasing and increasingly obvious damage being done to the U.S. financial system. The latest casualty is the Dollar itself.
Like political establishments, politicians like power. Some like it more than others. But politicians (with very rare and heroic exceptions) are front men and women. Behind them stands the establishment. And political establishments know that to maintain their position, they must retain control. to maintain control, they must RUN the country.
When a political establishment gets into an "inter-factional" fight, there is a fundamental disagreement as to how precisely their power is to be used. When that fight drags on, even as their control of the political/economic situation is deteriorating, you may be sure that the disagreement is fundamental. And that is what is now happening.
It is this inter-establishment fight which presents Gold with its best opportunity to rally in many years. Such a situation is tailor made for a loss of control. And with any loss of control will inevitably come a loss of control of the Gold price. We haven't seen it yet, but we ARE seeing the first signs of it.