As you know, the spot future Gold price in the US was up $US 26.10, probably its biggest one day nominal rise in the entire bull market so far, on Friday, November 23. Peruse the big market websites (Yahoo, CNNfn, Fox etc) and hardly a word was said about it. There was absolutely nothing on Yahoo's main business page in the US, for example, about the Gold price. The all time lows on the US Dollar got a mention. So did the $US oil price. So did the "speculation" about further Fed rate cuts. So did the big bounce on the Dow as Americans got their Christmas presents early when stores opened at midnight on Thanksgiving day.
But Gold? Not a word. On November 23 too, there was a lot of speculation in the mainstream US media that all the talk about the demise of the global reserve currency status of the US Dollar was "premature" and "overblown". "After all", said a lot of them, "what the hell else is there?" The Euro was not taken seriously, nor were the major Asian currencies, the Yen and the Yuan. And a "basket of currencies" was dismissed out of hand. Of course any idea that Gold might be a contender was not mentioned at all.
Last week, as you probably know, the Gold price took two big falls. On a spot future basis, it fell $US 27.00 on Monday, November 12 and $US 27.40 on Thursday, November 15. That was news. This week, Gold rose nearly $US 50 in three trading days and rose $US 26.10 on November 23 alone. That was not news, not in the US at least if one gleans one's news from the main media outlets.
But take a look at this table. It chronicles the bull market highs for Gold in four major currencies. Up until last week, Gold had reached bull market highs in three of the four currencies. This week, it reached a bull market high in the fourth, the Aussie Dollar. On November 23 the Aussie Gold price jumped $A 20.80 to reach $US 939.20. This is not only a bull market high for Aussie Dollar Gold, it is an all time high.
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The big story in the financial world today is the "resurgence" of the credit crunch centred in the US. The credit crunch never went away. What has surged again this week is fear about the implications of this credit crisis (which is not confined to the US, it is global) and the growing realisation that the situation is not getting "better", it is getting worse. Japan has not raised their official interest rates, but the Yen carry trade which has supported global lending (and incidentally the US Dollar) for years has savagely unwound. The "third tier" assets on the books of banks everywhere, the CDOs and their equivalents which have NEVER been valued on any type of open market, are frozen. Huge efforts are being made everywhere to come up with a "method" to value them. Only one method is NOT being canvassed, that of actually offering them on an open market to see what they are actually worth.
That has already been tried, by Bear Stearns back in June 2007. The "marketing" of these "assets" lasted mere hours before the bids offered fell so far below the artificial "valuations" that the door was summarily slammed shut on the "market". It has remained closed ever since.
The sad fact of the matter is that a debt instrument on which neither principal nor interest can be paid is not worth anything. It is nothing more or less than a piece of paper. The even sadder fact of the matter is that the global financial system has multiple $US TRILLIONS of this type of debt paper as a large part of its foundation.
From the day the last connection between paper currencies and Gold was finally sundered in 1971, such a state of affairs was a latent risk. The longer the fiat currency system lasted and the more "sophisticated" the methods developed to "value" inherently worthless paper, the bigger the risk became.
Now, the amount of inherently worthless paper sloshing around the global financial system is vast, and the risk is commensurately HUGE. It is so big that nobody wants to talk about it. For most of this month, financial summits have come and gone (G-7 and G-20) with no mention of the ACTUAL situation reaching the light of day. Ever since August, global Central Banks have been injecting ever larger swathes of "liquidity" into their respective systems to prevent the markets for debt paper siezing up altogether. And right up until the last two weeks or so, global stock markets have been amazingly resilient.
But now, we are watching all the efforts to keep the real extent of the credit crisis out of sight and out of mind crumble. Global stock markets have stumbled badly over the past week. Yields on short-term government or government guaranteed debt paper have plummeted in a headlong flight to perceived safety. The only step left after fleeing to government-guaranteed debt paper is to start to flee to what one perceives as, if not a strong currency, then a currency which is "stronger" than the alternative currencies. The US Dollar no longer qualifies here. That's why it continues to set all time lows on its trade weighted index, the USDX.
With Gold's big leap on November 23, the tide is inexorably starting to turn. The panic flight out of Gold and into the "safety" of government debt paper has lasted not much more than a week. Now, that flight is no longer out of Gold - IT IS INTO GOLD.
The state of "denial" which overhangs paper markets everywhere, nowhere more so than the US, is slowly but surely coming apart at the seams. A new $US all time high for Gold may just be the event which blows the doors wide open on the whole paper mess. We'll see, and we don't think we have much longer to wait.