"Will Gold keep going up in terms of the US Dollar and the other currencies (paper one and all) in the new year? Most assuredly it will. The only question is how long the present impasse under recent highs holds out. Last year, it took nine months to break through a December high. We don't think it will take anything like that long in 2006."
(Gold This Week - December 30 ,2005)
As we say in Australia - especially after a memorable 100th Test Match by the world's greatest batsman, Aussie Captain Ricky Ponting - HOWZAT!!
"The present impasse under old highs" held out for precisely one day. On January 3, the first trading day of 2006, the spot future Gold close leaped $US 13.60 to $US 535.60 and smashed through the old $US 528.40 bull market high set on December 12. Then on January 6 there was another $US 13 plus upmove, taking Gold above the $US 540 level. As we said last week, in 2005 it took nine months to break through a high set in December the previous year. In 2006, it took precisely one day to break through a high set three weeks before on December 12, 2005.
With 2006 now one week old, the $US Gold price is up 4.30% with the $US index down 2.57%. This, to put it as politely as possible, does not bode well for the great paper pyramid which is the global financial system. The world's financial press is doing a heroic job of ignoring it as are world stock markets. Even the US stock indexes are up substantially over the first week of the new year with the Dow threatening the 11000 level.
Yet it is obvious that the REAL situation is teetering on the brink of a potentially devastating collapse. Consider the fact that China began the year by stating publicly that they are going to start further diversifying their reserves. Combine that with the fact that the major factor in the US Dollar's weakness so far this year has been its falls against the Asian currencies. Throw in the fact that the reserves (mostly US Dollars) of both China and Japan have not been increasing since the middle of last year.
Now add to the mix the need for the US Congress to raise the Treasury's debt ceiling by mid March at the latest. Combine that with the accession of Mr Bernanke as Head Fed by the end of the month. Stir in the plans in Iran to open an oil Bourse trading in Euros in March and the end of US reporting of broad money supply (M-3) numbers at or about the same date. And season the entire mixture with the startling fact that in the first quarter of fiscal 2006 (Sept-Dec 2005), the US Treasury added almost $US 240 Billion to their funded debt.
Please rest assured that Treasurers, Central Bankers, and large investment firms all over the world are perfectly aware of all these factors, and many more. So are ever increasing numbers of individual investors. All the mechanisms developed over decades to keep the Gold price down are still functioning. But they are increasingly not WORKING. The imbalances of the financial system are so huge and so obvious that the financial powers that be are having increasing difficulty corralling Gold, no matter how hard they try.
All markets "discount the future". The first trading week of any year is the week which gives a bigger insight than usual as to the outlook of the participants. The BIG upmove in Gold this week does not so much show that global investors are aware of all the potential hurdles we have outlined above. What it shows is that the ability of those who seek to "govern" Gold is increasingly failing in the face of the demand from those who want to protect themselves by owning Gold.
In a rational economic world, Gold is not an investment, IT IS MONEY. It is only when Gold is prohibited from functioning as money by government fiat that it becomes an investment. Gold is being more and more looked on as an investment because it is taking more and more Dollars to buy the same amount of Gold. To look upon this as Gold going "up" against the US Dollar implies that it is the US Dollar which is the constant against which Gold (and all other economic goods) fluctuates. In reality, the opposite is the case. Gold remains what it has always been, a chemical element with fixed attributes which is at the same time an economic good which has been chosen over millenia as the most tradable good, the medium of exchange, THE MONEY. Gold is not changing, it is the US Dollar (and all other fiat paper currencies) which are changing. They are losing purchasing power relative to Gold.
This has now been going on, in fits and starts, for almost five years. But as this new year dawns, the process has greatly accelerated. This is not signalling the sudden unviability of fiat paper money. Fiat paper money has ALWAYS been unviable and every single one ever created has collapsed in ruins. No exceptions. What the Gold spurt of the first week of 2006 is signalling is a growing awareness of the danger represented by paper money, and an increasing preparedness by more and more people to defend themselves against that danger by acquiring Gold.
As we enter 2006, all the ingredients are in place for a perfect financial storm with its epicentre in the USA. We repeat, any financial system based and underpinned by fiat paper money is by its nature unviable. There has never in history been an exception to this rule. NOT ONE. NOT EVER. That is all you need to know. There is never a way to know precisely when and how the present system will collapse, only that it WILL collapse. Gold has given a red light warning that the collapse is coming closer very quickly indeed. Stay tuned, 2006 is shaping as a watershed year.