Over the course of the now nearly six-year-old Gold bull market, Gold has hit new all time highs in terms of a lot of currencies. Among these are the British Pound, the South African Rand, the Canadian, Aussie and New Zealand Dollars, the Indian Rupee and many others. About the only major currencies against which Gold has NOT hit a new all time high - yet - are the Euro (before 1999 - the German D Mark), the Japanese Yen and, of course, the US Dollar.
Of course, few people have paid any attention to Gold's all time highs in terms of all these "other" currencies. None of the "powers that be" in the (paper) financial world have paid any attention to them at all. For them, and for most people, the only Gold "price" which matters is the $US Gold price. And in terms of the US currency, Gold's all time highs were set back on January 21, 1980. These all time highs were:
Now, here's the $US 5 x 5 Point and Figure Gold chart updated to November 16:
The headline $US Gold price, the one everybody who has any interest at all in Gold remembers, is the January 21, 1980 spot close of $US 850.00 This is generally regarded as Gold's "all time high". Last week, on November 8, the spot future Gold close got as high as $US 847.50 in intraday trading. In other words, it all but made it back to the high. And that is where Gold's LAST "resistance point" has kicked in.
As you probably know, the Gold price took two big falls this week. On a spot future basis, it fell $US 27.00 on Monday, November 12 and $US 27.40 on Thursday, November 15. Bang, the last resistance point kicks in. Gold's fall on the week was actually $US 47.70 or 5.7 percent.
As we reported here last week, US Treasury Secretary Paulson has graduated from merely repeating his predecessors' "mantra" that the US has a "strong Dollar policy" and that exchange rates should be set in competitive markets. Starting last week, he started to actually defend, in public, the global reserve currency status of the US Dollar. Having reported on Mr Paulson's "upping the ante" last week, we went on to say this: "Is there a "correction" in the wings for the $US Gold price? Of course there is. The only question is will it come here or will it come at a price above the highs set in 1980. Either way, a 'correction' in a bull market is a quite normal event."
As it turns out, it came "here" - Gold fell $US 2.80 last Friday before the first of its big falls this week took place on Monday, November 12. Looking at the $US 5 x 5 point chart above, we can't even call what happened last week a "correction", what it is, so far, is merely a downturn. Yes, it's a fairly precipitous downturn, but when any market price is hitting its head against its LAST resistance point, big sell-offs are not unusual.
Take two examples. It took the Dow twenty-four years - until 1953 - to regain the all time high it had set at the end of September 1929. It had a struggle at that point, but finally broke through and climbed as high as 1000 by 1969. Gold has actually taken longer than that - nearly twenty-eight years - to regain the high it set in 1980.
Why is a "resistance point" a resistance point? One of the major reasons is that people who bought into the market in question the last time it reached that level have suffered through a period (often years or decades) of holding on to a losing position. After having given up hope that they would ever "break even", the market "miraculously" regains the level at which they bought. The urge to "get out even" is overwhelming. Thus they sell.
Of course, given the inexorable and never ending erosion of the purchasing power of money - any PAPER money - these sellers are getting out even only nominally. An investor who sold stock in 1953 which he bought in 1929 may actually have got the same number of Dollars back that he put into the market, but the purchasing power of 1953 Dollars was a lot less than was the purchasing power of 1929 Dollars. It is the same for any Gold holder who bought part of his or her holdings at or above the $US 800 level in January 1980. He or she might have got the same price, but the purchasing power of the money they received was MUCH less. On the goverenment's own figures, as calculated by their CPI, it would take about $US 2350 in November 2007 to buy what it took $US 850 to buy in January 1980.
Nonetheless, there is a sense of "pyrrhic" satisfaction felt by a lot of people when they sell something for what they bought it for, even though the sale occurs nearly three decades later and they can't buy anything like as much with what they get back as they could with what they paid in the first place. That's why resistance points exist - and an all time high is always the most formidable resistance point of all.
Now, was there any "hanky panky" by the monetary powers that be inside and outside the US that might have contributed to Gold's downturn this week? More than likely, in fact almost certainly. But we make three points in regard to that. First, Gold HAD to be hit. This week (see the Mid November issue of The Privateer - #591 - published on November 18), President Bush himself came out in public to defend the US Dollar. In the face of public statements about the US Currency from the US President, a $US Gold price rampaging upwards would have fatally destroyed the fragile credibility of the entire US government and, behind them, the US establishment.
Second, there is ALWAYS "hanky panky" in the Gold (and silver) markets. The precious metals are POLITICAL metals. Modern politics, wherever it is practised, depends on an unending and ever increasing flow of "money" to operate. Gold (and silver) circulating as money chokes off this flow. The second point is that if one DOES have a vested interest in keeping Gold (and silver) out of the calculations of those who are looking with increasing unease for anyplace to preserve their wealth, one picks the best spots to hit the price. What better spot for Gold than the return to its all time $US highs?
The final point to be made is that even if there had been no "interference" at all by the monetary powers that be, a downturn and/or correction in the $US Gold price from the mid $US 800 levels it achieved last week was a likely occurrence, simply because it IS Gold's final resistance point.
So, here we are with the $US Gold price back below the $US 800 level. This weekend, there is a G-20 meeting taking place in Capetown, South Africa. If the US can get its way at this meeting, the chances of a concerted global effort to arrest the slide of the US Dollar is likely. If that happens, then Gold's correction may last a while.
If the US cannot get its way, and it has been a while since ANYTHING went "right" for the US government in terms of global "co-operation", then this Gold correction might be short lived. We will watch, and wait. However long this Gold correction lasts, we are absolutely sure that $US Gold is not going to be stopped at $US 850. The wait is simply a matter of time.
Please note that Gold exceeded its 2006 highs in terms of three of the four currencies in the table below last week and was on the verge of doing so on the fourth one, the Australian Dollar. Now we have the $US Gold downturn/correction.
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