A year ago, on November 24, 2004 - the last trading day before the two-day Thanksgiving break - Comex spot future Gold closed at $US 449.30. The spot future Gold price actually traded below that level as recently as September 14, 2005. And three weeks ago on November 4, the spot future price was less than $US 10 above its levels of a year earlier, closing at $US 457.90. But the day before the Thanksgiving break this year, spot future Gold closed at $US 492.30. On Friday, November 25, the London Gold fix was $US 495.90.
In essence, ALL of the Gold price rise of the past year has taken place over the past two and a bit months and most of it (80% of it in fact) has taken place over the last three weeks.
Something very similar happened in both 2003 and 2004, but there was a BIG difference. The rises in the $US Gold price late in those years was greatly helped along by a plummeting US Dollar. As you know, that has not been the case this year. Back on November 4 when spot future Gold closed at $US 457.90, the $US index closed at 91.16. Three weeks later, with Gold having risen by $US 34.70 or 7.6%, the $US index was not down, it was UP. On November 25, the $US index closed at 91.98.
This development is very significant indeed. The $US index actually hit its bull market high in July 2001, with Gold still trading below $US 270. From there until the end of 2004, the rise in the $US Gold price was simply fobbed off - by the financial asset markets - as a reciprocal of the falling US Dollar.
The "proof" of that was said to have come over the first eight months of 2005. Over that period, the $US index rallied from its end of 2004 lows (just above the all time lows of 80.00) and Gold languished below its December 2004 highs. "Reality", as interpreted by the monetary "powers that be" had reasserted itself.
The problem for "reality" has come over the last three months. Over that time, Gold has been rising against a US Dollar which refuses to fall. The result, of course, has been an EXPLODING Gold price in terms of the other major global currencies. Just take a look at what has happened to Gold in Japanese Yen for example!
That chart is just one example. In fact, confining one's attention strictly to charts of Gold in US Dollars is deceptive because it does not show just how IMMENSE the Gold explosion of recent weeks has been. What is happening is a gradually increasing unease which is now becoming distrust with with not just paper currencies, but with the perverse actions of paper (and real estate) asset markets over the past few months.
While Gold has been accelerating upwards over the past three weeks, so have global stock markets and US stock markets in particular. In addition, the rapid rise on the yields of US Treasury debt has stalled ever since the Fed imposed its latest rate rise at the beginning of November. On real estate markets, the MEDIAN (half above and half below) house price in San Fransisco is now $US 800,000. This is an absurdity, but only one amongst many in current markets.
More and more investors, inside and outside the US, are recognising the current surges in the paper markets as being unsustainable. They are buying Gold. Some of them are looking beyond that and expect that when REAL economic reality reasserts itself, the carnage on these same markets has the potential to be severe, to say the least. They are buying more Gold.
The US Dollar remains the "anchor" of the global financial system. Gold is now approaching the $US 500 level, the TOP of a gigantic trading range in which it has been confined for almost a quarter of a century. The "green light" for unlimited global inflation was turned on a decade before that, when the world's reserve currency, the US Dollar, was decoupled from Gold. The strains and distortions of the global system have been growing ever since. They are now of unprecedented proportions.
That is why Gold is climbing, despite a steady US Dollar, despite falling oil prices, despite global stock market rallies, and despite quiescent Treasury yields. Gold is not reacting to things that are happening in the financial system, it is reacting to things that more and more people expect to happen to it - soon.
There will certainly be an attempt to "cap" the $US Gold price at or about the $US 500 level, just as there were attempts to "cap" it at $US 300 and $US 400. Both previous attempts were successful, for a while. We'll see what happens this time. But whatever happens, Gold will crack through the $US 500 level just as it cracked through $US 300 and $US 400. It could well happen this coming week. It is VERY likely to happen before the end of the year.