Gold Performance in 2000 Against 14 Currencies
Currency Start 2000 End 2000 P'cent Indonesian Rupiah 2056160 2647080 28.74% Australian Dollar 440.42 489.74 11.20% Thai Baht 10857.10 11870.14 9.33% Japanese Yen 29608.70 31349.09 5.88% UK Pound 178.97 183.26 2.39% Brazilian Real 522.44 533.25 2.07% Euro 286.44 290.40 1.38% German D-Mark 560.14 567.64 1.34% Russian Rouble 7935.04 7806.08 -1.63% Canadian Dollar 420.96 410.18 -2.56% Swiss Franc 460.67 441.07 -4.25% Hong Kong Dollar 2251.21 2134.00 -5.21% US Dollar 289.60 273.60 -5.52% Chinese Yuan 2397.74 2264.70 -5.55% NOTE: The Hong Kong Dollar and Chinese Yuan are FIXED to the $US COMPARISON: Dow -6.16% S&P 500 -10.12% Nasdaq -39.27% $US Index 7.75%
For 18 years, from 1979 until 1997, Gold established a "floor" for itself at the $US 300 level. In November 1997, Gold fell below $US 300 for the first time since March 1985. Since November 1997, Gold has only ever briefly managed to get back ABOVE $US 300, and when it has, it hasn't stayed there for long. For more on this phenomenon, please take a look at this page: Gold 1998-2000: "Below The Floor".
2001 will be the fourth year since Gold first dove below $US 300 in November 1997. That came as the "Asian Crisis" which began in July 1997 blew up into a world financial crisis. But there is no financial crisis on the horizon now, is there?
Asian stock markets have had a perfectly HORRIBLE year this year. Privateer Subscribers, please check out the performance in 2000 here. While you're at it, check out the performance of the Asian markets discounted for currency performance against the $US. Even with the fall of the $US over the past month, it's even worse! The Japanese stock market, for example, has had its worst year in a decade, and now the Yen is falling against a falling U.S. Dollar. No "crisis" here, is there?
European markets have had a losing year too, albeit not as bad as Asia's. On top of that can be added the Euro, which has only turned around against the $US over the past month after diving all year.
The U.S. has had a year they will be very glad to put behind them. The Dow hasn't fallen year on year since 1990. It fell - 6.16% - this year. This is the biggest year on year percentage fall since 1981. Treasury yields have been inverted all year. Oil prices almost reached escape velocity, before having fallen back into the stratosphere over the past month. And finally, there is the Almighty Dollar.
"The problem is that there is no adequate substitute for the U.S. and its Dollar as a place to park money, however "hot". The U.S. is about to embark on another episode of the type best exemplified by a U.S. Treasury Secretary who said to his European counterpart back in the early 1970s (this is a paraphrase): 'We've got the Dollar - and that's your goddamn problem!'"
(Gold Commentary - December 22)
In the last five weeks of 2000, since November 24, the $US has been on an accelerating slide. Over that period, the $US index has dropped 7.74% (118.45 to 109.28). Over those same five weeks, the $US index has given back more than half (53.3%) of its rise of the preceding eleven months. No crisis here, for sure!
No one in the U.S., or at least no one who is talking about it, sees this fall in the Dollar as being any kind of a problem. If they did, they would not be so "confident" that the Fed is chomping at the bit to start slashing away at interest rates in the new year. If that makes the $US fall even faster, so what? That'll just make U.S. business more competitive. It will put an end to all these pesky bad earnings reports and the markets can get on with it again and go UP. After all - U.S. (stock) markets ALWAYS go up - no matter what!
As the year just ended has demonstrated, that ain't so. But to expect another year as bad as this one is almost as absurd as expecting Gold to actually go UP in 2001. Everyone knows that Gold is stone DEAD. The markets, on the other hand, have just taken a breather this year.
As long as the Dow remains above the 10000 level this attitude will last. And, as long as Gold stays below $US 300, the attitude will last. Gold has been below $US 300 for more than three years. The Dow has been above 10000 since March 1999. This, given the "attention span" of the vast majority of investors, is enough to be seen as being in the nature of things, like the fact that the Sun rises in the east or that water always runs downhill.
Historically, this type of attitude (and we think that you who are reading this will agree that this attitude prevails) is very hard to shake. What usually shakes it is a totally unexpected shock. Well, there is one U.S. government agency which is a past master at administering unexpected (and not so unexpected) shocks. That agency is the U.S. Internal Revenue Service (IRS). It just so happens that on January 1, 2001, the IRS will be implementing a "new" tax policy. For years, the IRS has been waxing fat off the bull markets in the U.S.. 2000 was a shock, it was a much leaner year, as the huge haul from capital gains dried up.
Starting on the first day of 2001, the IRS is going to try to patch up this hole in their revenue stream. And the way they are going about it has the CERTAIN potential to divert capital from U.S. markets to markets elsewhere in the world, notably European markets. Privateer Subscribers: If you haven't already read it, we have posted a Special Report on these IRS plans at the Subscribers' Pages.
As we enter 2001, we have a situation in which U.S. markets have had a bad year. Now, the Dollar is falling, while everyone expects a Fed rate cut. This is supposed to "save" the markets. It has a far higher probability of SINKING the Dollar. And to top it off, the IRS is about to implement a new tax directive which will make the U.S. a much less attractive place in which to invest - ESPECIALLY for foreign investors, who have been financing the U.S. current account deficit for most of the past decade.
Plenty of potential, then, for shocks in 2001. Gold has been pinned beneath its $US 300 floor for more than three years. For more than three years, all the world's "hot" money (and it has been getting "hotter" every year) has been flowing into the U.S.. We have only seen that slacken over the past few weeks, so far, even though U.S. stock markets topped out last March.
As we have been saying on these Gold Pages since November, the pressure is building under the $US Gold price. We do not expect the "lid" to remain clamped on Gold for another year. 2001 is shaping up as the year when Gold finally does manage to get back above $US 300, and so establish a new BULL market.
HAPPY NEW YEAR to everyone reading this page, and especially to our subscribers. If you are not (yet) a subscriber, we hope you have enjoyed our work here over the past year. We look forward to welcoming you aboard The Privateer in 2001
