A little less than three weeks ago, on February 27, the Dow did a reasonably spectacular (given its previous lack of "volatility") 416 point swan dive. Gold hardly moved on the day, at least not while it was being traded on the "open" markets of the Comex and the CBOT. But as soon as these markets closed, the after hours "Access" market got hold of Gold and it fell almost $US 25 in a matter of minutes. This week, there was another episode on Tuesday, March 13 when the Dow fell 242 points. Again, nothing much happened to Gold while it was trading on the "open" markets. That was reserved for the after hours "Access" trading, when Gold promptly fell about $US 7.00
If one was to speculate that this type of "market action" was somewhat suspect - a bit like the sudden revalation that Kalid Shiek Mohammed is the bad guy behind everything that has happened to the US since 9/11 - we would be hard pressed to disagree. In both the above cases, we would go further, it was downright blatant.
But the powers that be in the US, whether they are trying to control the US empire or the domestic US financial system, have little choice left but to be blatant. Neither the mess which the Bush Administration has made of their Middle East "policy" or the debt riddled edifice which is all that remains of what was once (a long time ago) the world's strongest economy is "fixable". Nor can the mounting damage that is being done to the American people (and everyone else) be camouflaged by the "traditional" methods of singing the praises of "freedom" and democracy" and massaging the financial "numbers" whenever necessary. The rot has gone too far and bitten too deep.
The US political and financial establishment can either give up and get out of the way, or they can do what they are doing, they can manipulate the system in ways which grow ever more blatant and "dare" the world to call their bluff.
Treasury Secretary Paulson talks about "feeling good" about the US economy. Fed Chairman Bernanke gently suggests that according to the Fed's computers, actual US price inflation might be ever so slightly "overstated". Meanwhile, the crucial financial sector of the US stock market is trembling on the brink of its so long delayed implosion. The "sub prime" sector has gone first and is now threatening to drag the major financial institutions down with it. As this happens, Wall Street does what it always does. It tells the world that the whole thing is a tempest in a teacup, that the sub prime sector of the mortgage market will not impact anything else, and that they're "working on it".
We can only hope that there is an enterprising journalist out there today who is doing the research necessary to emulate the long-forgotten Edward Angley. Mr Angley published a book he called "Oh Yeah?" in 1931. This book consisted in its entirety of quotes from members of the US political and financial establishment of the day. All of them, without exception, called for the imminent recovery of the US markets and the US economy. All of them, without exception, were debunked and in fact made to look utterly ridiculous by subsequent events on the markets.
To any student of economic or political history, there is an air of inevitability about what is happening today. The Dow has had two big "down" days in less than three weeks. Each time, the chorus intensifies to the effect that everything is under control. Each time the effort to "prove" it by both blatant statements and even more blatant market manipulations "achieves" less.
When US markets slumped at the end of February, the Gold price was savaged, the US bond market soared, and the US Dollar had a one day hiccup and then regained its losses very quickly. This week, the US markets slumped, Gold fell for one day, the US bond markets have hardly moved - yet, and the US Dollar fell and has continued to fall. The $US Index (USDX) was down 0.43 to 83.23 on Friday, March 16.
And, by the end of this week, Gold had regained all its losses of earlier in the week and a bit more.
Next week, of course, the FOMC meets. With the rest of the world firmly raising rates, the Fed has sat on its hands since the end of June last year. It cannot continue to do so much longer. The Fed doesn't dare raise rates. They would like nothing better than to start lowering them again, and the sooner the better. They know that to do so would at least give the faltering US financial sector a stay of execution.
The problem is, of course, that lowering rates would be a blatant admission by the Fed that the debt problem is much bigger than they would like to admit. It would also put under grave pressure a US Dollar that is already sliding with increasing speed. There is another problem. When the Greenspan Fed lowered rates eleven times (from 6.50 percent to 1.75 percent) in 2001, the rest of the world fell all over themselves to follow suit. This time, such an outcome is far less likely.
As the collapse of the "sub prime" sector in the US inevitably puts more and more pressure on the entire financial structure, the pressure will increase. As the pressure increases, the "attractiveness" of the US as an investment "haven" for foreign capital will shrivel. Any move by the Fed to lower official US rates would only speed up that process.
Over the last two days of this week, spot future Gold gained $US 11.40. The US stock markets are perilously close to 2007 lows. Yields on the US Treasury bond market have started to inch up again, while prices inch down. And the US Dollar is falling with increasing speed. The manipulations to keep Gold in check are going to have to get more and more blatant. And the more blatant they get, the closer we get to the point where they no longer "work" at all.
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