On May 11, 2006, the spot future Gold price closed at $US 721.50. That remains the high for post April 2001 Gold bull market. The first anniversary of that 2006 bull market high comes at the end of next week, on Friday, May 11, 2007.
Spot future Gold close on May 4 at $US 689.70. That's $US 31.80 or 4.4 percent below its bull market high. Not a huge amount, but a big nut to crack given the fact that Gold hasn't closed above that $US 700 level since May 12 last year. The fact is that the period since May 11, 2006 is the longest so far in Gold's bull market in which Gold has not set a new high. If it doesn't get there next week, it will have sat below its bull market high for a full year. The longest period Gold has gone previously without beating a previous bull market high was just over ten months.
Is this particularly significant? Not really. Gold fell from just under $US 200 to just over $US 100 between December 1974 and August 1976 and then took well over two years to regain its December 1974 highs. A little over a year after that, it had more than quadrupled those December 1974 highs.
The fact that Gold has not managed to regain its bull market highs over the past year (less a week) speaks volumes, however, about the increasing desperation of the US and global financial powers that be and their loss of control of the financial system which they depend on to continue to be the "powers that be".
Consider what was happening as Gold soared from $US 500 to well over $US 700 in the six months between December 2005 and May 2006. The US real estate bubble reached its "apogee", despite the fact that the Fed was raising official US interest rates with clockwork regularity by 0.25 percent every time the FOMC met. The Treasury bumped up against its "debt limit" in late January and the "numbers" were frozen until the limit was raised - by $US 781 Billion to its present level of $US 8.965 TRILLION - on March 16, 2006. The President was plunging in the polls and for the first time, the majority of Americans deemed the war and occupation of Iraq as a "mistake" and were quickly coming around to favour a withdrawal from that nation.
But even with all this going on, a patina of US economic prosperity was still intact. The housing boom was still on and everyone still clung to the illusion that they were "rich", at least on paper. The Republicans still held both the White House and the Congress. The Iraqi's had even elected themselves a "government", allowing the Bush Administration to claim that they had restored "democracy" to that nation. In short, the perception that everything was still "under control" was still in place. Gold's run up from $500 to $700 plus in the first half of 2006 was largely fuelled by the traders who were jumping on every market bandwagon as soon as it appeared on their radars as offering a potentially superior return, no matter how long or short-lived that might be.
If we look at the year SINCE Gold hit those $US 720 plus highs in May 2006, the cardinal difference which is immediately apparent is the LOSS of perceived control by the "powers that be". Since the Fed stopped raising rates at the end of June last year (even though everybody else did NOT), their ability to control the financial system in general or the money supply in particular has come under ever growing doubt. The past year has also seen the END of the last great US investment boom, the real estate bubble. On top of that, the Republicans lost control of Congress in the November 2006 mid term elections. And over the past two months (during which Gold has only had one "down" week - and that was last week), the US Dollar has come under ever increasing pressure.
With this perceived loss of control, along with the perceived loss of legitimacy of the Bush Administration and their foreign (and domestic) adventures, has come an increasing sense of desperation by the US establishment, both political and financial. With that has come the increasing necessity to grimly retain control on anything where a retention of control is still possible.
As we have pointed many, many times, the source of the power of the US establishment is their control of the US currency and their ability to make the rest of the world accept it in return for REAL economic goods. The most dangerous adversary of the US Dollar is not any other global paper currency, it is REAL money, and that is Gold (and also Silver). As their power and control slips in more and more areas, their efforts to maintain it grow proportionally. And so far, they have been successful in controlling the precious metals. Neither Gold nor Silver has regained the highs they set this time last year.
We do not know how much longer this state of affairs can last. What we do know is that the longer it does last, the harsher the consequences (for the US establishment) when their control is finally lost, which it inevitably must be. Right now, about the last desperate throw which the US establishment still retains is to escalate the already out of control situation in the Middle East by attacking Iran.
But to do that, using the same tired structure of lies and fabrications that they used to justify their attack on Iraq more than four years ago, would complete the process of turning the US into an international pariah. The American people can't stop this, any more than could the German people stop it in 1939 or the British people stop it in 1775. The only way to stop a desperate political establishment is to show them that the consequences of their contemplated actions will be worse than the consequences of refraining from taking those actions. There are thousands of truly patriotic Americans who have already done that. The rest of the world is trying hard to do that too. One can only hope that some form of sanity will prevail. There are historical precedents. The British gave up an empire. So did the former leaders of the Soviet Union.
Right now, all we can do is watch and wait. Gold breaking above its highs of a year ago would be the best evidence yet of a loss of control by the US establishment. The speed with which it breaks those highs and the trajectory of its subsequent advance would be the best measure of the comprehensiveness of that loss of control.
As we stated here last week, these are the numbers to watch out for:
Here is Gold in four major currencies in relation to its bull market high. As you can see, the 2006 high in Japanese Yen has been bettered this year.
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