"It (Gold) was showing some signs of recovery in the last week of 2000. Now it is back on the emergency ward."
From the Jan. 5 Commentary
As most of you reading this probably know, that's an old adage on U.S. stock markets. Is it also an applicable "adage" for the $US Gold price? Well, if it is, 2001 is not shaping up very well. Over the first two weeks of January, Gold is down 3.29% in U.S. Dollar terms. It's down quite a bit more than that in terms of most other currencies.
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Well, let's take a look (in "round" numbers):
Year Start Jan End Jan End Year 1995 $384 $375 $388 1996 $388 $405 $369 1997 $369 $344 $289 1998 $289 $302 $289 1999 $289 $286 $289 2000 $289 $283 $273 2001 $273 $264 - to Jan. 12
Not very conclusive, is it? 1997 certainly fits the bill. 1997 had a bad January, and eleven other bad months afterwards. It was the third worst year for Gold since 1971. But 1995 doesn't fit, nor does 1996 or 1998. And not much happened either way in 1999 or 2000. In fact, Gold started three straight years (1998-2000) at exactly the same level - $US 289.
Pretty amazing isn't it? - Gold starting each year 1998 through 2000 at exactly the same level in $US terms. And, considering the banging and (you should pardon the expression) crashing that went on throughout the period on almost all other markets everywhere, Gold's annual trading range is equally amazing. It hardly moved.
This, we submit, is much more amazing than Gold's recent performance in going down in tandem with the U.S. Dollar. Yet that phenomenon, Gold going down with the Dollar since late November 2000, has caused more gnashing of teeth amongst the "Gold fraternity" than anything else that has happened to Gold for years. In fact, ever since Gold had that awful year in 1997 and dipped below its $US 300 "floor", the $US Gold price has been harnessed very effectively. It has seldom gone above $US 300, and seldom gone below $US 270.
January's aside, what we DO know is that since 1997, every Gold excursion above $US 300 or below $US 270 has coincided with a rather large "hiccup" in the global financial system. Now, we have what is potentially the biggest "hiccup" of all - the prospect of an actual "recession" in the U.S. economy. And Gold, which was actually threatening to break loose just three weeks ago (when talk of a U.S. "recession" had yet to surface), has subsided right back to its 2000 lows. Nothing surprising about that - the $US Gold price has been doing the opposite of what it "should" do for years now.
Definition: The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
Here's the latest from the charts of Gold in "other" currencies. Please note carefully that looking at these precipitous dives, no one would come to the conclusion that there was any type of "link" between Gold and any of these currencies. The U.S. Dollar is (still) the world's Reserve Currency, and the impression is still being maintained that there IS a "link" between Gold and the $US. That's why the Gold "elbbub" is being maintained.
Here are the charts:
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
Mr Clinton was inaugurated for his second term in January 1997. Six months later, the "Asian Crisis" had broken out. Six months after that, Gold had ended its third worst year on record and had fallen below the FLOOR ($US 300) which had supported it ever since 1979. The "Asian Crisis" has never really gone away. But it has taken Mr Clinton's full second term for that financial crisis to finally start to have an impact on the world's economic and financial epicentre - the U.S.A.
We are now two weeks into 2001. The Fed has already cut rates once, and has another opportunity to do so (which almost everyone, including us, expects them to take advantage of) on January 30-31 when the FOMC actually meets. About the only high ranking "government official" who will survive the transition to the Bush Presidency is Head Fed Alan Greenspan. If you don't think Mr Greenspan is (de facto) a "government official", consider who appoints the Head Fed.
And if you STILL don't think that Central Bankers manipulate Gold, consider what Mr Greenspan had to say about it way back in 1966.
Mr Clinton (and Mr Greenspan) laid the groundwork for a U.S. recession or worse. Mr Clinton won't be in office to see it. Mr Greenspan will. Mr Bush must have known, in general terms, what he was facing if he won office. Once he actually gets his hands on the levers after January 20, he will know in detail. If will be VERY interesting what (if anything) he chooses to do about it. We have heard lots of talk about tax cuts. We have heard little if any about cutting the size of government so that tax cuts can be afforded.
Meanwhile, the Gold "ellbub" is getting bigger. The stock market bubble burst nearly a year ago. The Gold "ellbub" is made of tougher stuff. Why, because a falling stock market does NOT directly threaten government control of the money and therefore the economy. A rising Gold price DOES!
HAPPY NEW YEAR to everyone reading this page. If you are not yet a Privateer subscriber, we think you will find our current issue a good one to start with. Here's what one of our subscribers had to say about it.
