Please note that the COMEX, from which we get out spot future Gold data, has not traded since Wednesday, November 22. Please note futher the latest Gold prices as of November 24
Just as they have already opened in the "policies" of the US government and in the US economy, the cracks have opened in the US financial system. The evidence is plain. On Wednesday, November 23, the US Dollar index (USDX) closed at 84.63. Two days later on Friday, November 24, it closed more than a full point lower with a new 52-week low closing level of 83.60.
Take a look - it's not a pretty picture
Commodity and precious metals prices have not reflected this on the US COMEX market because that market has not traded since November 23. Nor has the swan dive yet been reflected on US stock markets, with the Dow down less than half a percent (0.38 percent) on November 24 after having been closed for Thanksgiving on the previous day.
Now, take another look at the USDX chart above. As already stated, the 83.60 point closing level on November 24 was a new 2006 low. The USDX has traded slightly lower on an intraday basis this year. It did that in mid May. The previous 52-week low, however, was 83.83 set on May 12. May 12 was the day after the Comex spot future Gold price hit its bull market high close of $US 721.50. On that day, it closed at 711.80. Now, with the USXD plumbing the same depths, Gold is nearly $US 100 lower than it was back in mid May this year.
Here is an interesting question. If the USDX remains at these low levels or continues to fall towards the critical 80 level, how long will Gold remain below those mid May 2006 highs? The answer is, of course, simple. As long as those in charge of the global financial system can keep it there.
The vested interest in the continuing health and functioning of the global financial system is, as the name suggests. GLOBAL. It is by no means confined to the US, although the US has the most to lose from any serious disruption to the functioning of the system. Every nation in the world depends on fractional reserve banking with the "reserve" shrinking ever smaller and being paper which is printed up at will and "on demand" by the Central Banks anyway. No nation's currency is ultimately "redeembable" in anything except more of the same currency, or the global "reserve currency" the US Dollar, in a really tight spot. And of course the US Dollar itself is not redeemable in anything either, except more US Dollars.
How big is the vested interest in the continuing "health" of the global financial system and the US Dollar? Well, as reported in the Late November issue of The Privateer (Number 566 - published on November 26), the Fed's latest reports show that the rest of the world held $US 11.6 TRILLION in US financial instruments at the end of the second quarter of 2006. On top of that, over-the-counter exchange traded derivatives (based on those "financial instruments") have ballooned from 27.3 percent to 772.8 percent of GLOBAL GDP since 1990.
All of that gargantuan increase in debt-based instruments has as its only foundation the "confidence" of both creditors and debtors in the financial, economic and (yes) military might of the USA. The US government, led by the Bush Administration and aided and abetted by the US Congress, has almost totally dissipated that confidence since 9/11.
The fact that the confidence itself has been misplaced for many decades and became based on literally nothing ever since the US Dollar became redeemable in nothing in 1971 is not relevant here. What is relevant is that confidence, misplaced or not, existed. It does not exist any more. What continues to exist is the system - and the grim reality that any malfunction, let alone collapse, in that system will lead almost instantly to HUGE political, economic and financial upheaval everywhere.
Not so coincidentally in this respect, the IMF chose the US Thanksgiving holiday to once again raise the prospect of selling some of its Gold reserves, presently estimated to be 103 million ounces (just under 40 percent of reported US Gold holdings of 262 million ounces). This "issue" crops up on a regular basis of course. The last time the IMF was talking about selling "its" Gold was in 2005 and again in early 2006. That time, the rationale was to use the proceeds to provide debt relief for "poor countries". This time, the rationale is to fund projected operating losses in the IMF itself.
The last time the IMF was talking about selling Gold, the Gold price was around the $US 500 level. Five months later, it peaked at $US 721. Today, Gold is hovering just below the $US 640 level. As we have pointed out over the last few commentaries, Gold has hit new bull market highs in the November/December period in every year of the bull market which began in 2002. Next week is the last week of November. It will be interesting to see what happens between now and Christmas.
This is how we concluded Gold This Week last week
"Of course, in reality, the reason that global indebtedness and the total of tradable instruments denominated in the various fiat currencies of the world are so grotesquely large is precisely because Gold has NOT played any official role in the modern financial system for a bit more than thirty-five years now. This system has long been a galactic financial accident waiting to happen. With a lame duck President and a lame duck economy, the US is right on the verge of pushing it over the edge. Gold will return as money. That much is certain. What we don't know is where, and when."
We can elaborate a bit on that statement this week. First, we don't think it will be in the US. Second, we still don't know when, but if the sudden dive in the US Dollar continues over the next few weeks, it is likely to be sooner than any of us might have thought.
