The technical situation for Gold is coming to a decision point. Of that there can be little doubt. Over the past two weeks, Gold has tried TWICE to break below its 1999 lows into areas not seen since the first half of 1979. It has failed both times. And on Feb. 23, spot future Gold closed at its highest level since Feb. 7.
For more on the technical situation in Gold, please take a close look at these two pages, if you haven't already done so:
The Gold Bottom Study
The $US/$A Gold comparison
Please note this fact carefully. Gold has spent most of the past month at or below the $US 260 level. That is, at levels just below the lows it set in 2000. Note also that Gold has languished in the three weeks since the Fed's last rate cut, the January 31 cut, the second cut in the month of January, 2001.
The two January rate cuts were deemed "necessary" because of the crash stop of U.S. economic "growth". They were deemed "safe" because there was no evidence of price inflation. It was hoped that they would "fix" the situation. Well, on the evidence which has come out in February, they have NOT "fixed" the situation at all.
What is worse, much worse, what had been for years the two most reliable U.S. "lack if inflation" indicators have suddenly failed to function correctly. The latest PPI increase was reported at 1.1% (13.2% annualised). The lastest CPI increase was reported at 0.7% (8.4% annualised). U.S. stock markets have been sagging ever since the first of these figures came out on Feb. 16. Their sag was accelerating on Friday, Feb. 23, until the last two hours of trading for the week.
That was when the "Angell" of Mercy appeared, in the form of Mr Wayne Angell, a former Fed Governor. Mr "Angell" said that he wouldn't be at all surprised if the Fed decided on another 0.5% rate cut - NEXT WEEK! The next FOMC meeting is not until March 20, almost a month away. Clearly, this is too long to wait for another "credit fix", at least Mr Angell thinks so. It would seem that Wall Street believes him. All the major U.S. market indices, ESPECIALLY the Nasdaq, staged fairly spectacular "recoveries" in the last two hours of trading on Feb. 23.
"The usual piquant nature of what passes for market commentary re-asserts itself here. Regarding the PPI, the almost universal assessment is that the number was an "aberration". It won't be repeated next month. Having said that, there was the additional task of reassuring everyone that the fact that the PPI was an aberration means that the Fed will not be derailed from their plans to keep on cutting U.S. rates. Finally, that hoary old chestnut - Stagflation (rising prices with falling "growth") raised its head again. "Don't worry (say the pundits), prices can't rise even though business input costs are rising. Business can't pass on their increased costs to consumers". The moral of the story. NO INFLATION - NO MATTER WHAT!"
Gold Commentary - Feb. 16
Of course, the same type of commentary accompanied the release of the CPI figure on Feb. 21. The problem is that the quick fire barrage of these two "inflation measures" was spooking U.S. investors. They were worrying that maybe the Fed wouldn't be able to lower rates again, maybe not even at the net FOMC meeting in late March.
The only "inflation indicator" that was not moving was the $US Gold price. That is no longer the case. The $US Gold price regained the $US 260 level on Friday, Feb. 23. Still, that's nothing like as spectacular as a +1.1% PPI or a +0.7% CPI, not yet anyway. Can the U.S. "powers that be" continue to control the Gold price in the face of a THIRD (and obviously panic stricken) rate cut? We wonder if they can.
The straws that are now being grasped at on U.S. investment markets are not very robust these days. We don't know if Mr Angell drew the "short straw" and became the one to get the market's hopes up. We don't think he came up with the idea to predict another rate cut all on his own. Being an ex Fed Governor, he knew he has "credibility". AND SO DO ALL THE PRESENT FED GOVERNORS, AND THE FED CHAIRMAN.
This is the next best thing to PROMISING another 0.5% rate cut next week. Woe betide the markets if they don't get one. We shall see what happens.
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 are the Gold in "foreign" currency charts:
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
Do take a look at these, they are all improving nicely
In financial markets, a "bubble" expands until it explodes - Japan in 1990, the Nasdaq in 2000. An "elbbub" contracts until it cannot contract any further. What we are waiting for with Gold is evidence that such a state of affairs has arrived.
Neither Mr Greenspan nor any other Fed Governor has said that the Fed is going to cut rates next week. Only an EX Fed Governor has said that. OK, what if the Fed DOES cut rates (by another 0.5%) next week? It would be the SECOND cut this year outside of regular FOMC meetings. It would be absolute PROOF POSITIVE that the state of the U.S. economy is DIRE, and that the Fed KNOWS that it is so.
To send up a balloon about another rate cut in the immediate aftermath of two LARGE "inflationary signals" (the PPI and CPI increases) is absolutely redolent of PANIC. It will take a remarkable ability to bury its head deep in the sand for Wall Street to ignore this PANIC signal. You can be absolutely assured that the rest of the world will NOT ignore it.
The LAST "Yes we have NO inflation" indicator in the U.S. is the $US Gold price. It is beginning to react, only slightly so far, to what is going on around it in the U.S. economy and financial markets. On Feb. 23, the U.S. Dollar took a big fall, and did NOT recover along with U.S. markets. Another rate cut would intensify the pressure on the Dollar, which is still holding at levels well above the levels at which it began 2001.
As we said in the latest issue of The Privateer:
"The Privateer expects any and all means, overt and covert, to be put into use by the U.S. authorities over the weeks ahead. The goals will be, in order of importance: To support the Dow above 10000, to re-liquify the U.S. financial system, and to support the U.S. Dollar. And as an essential prerequisite to all of this, the Gold price must be held down.
A "low" Gold price is about all the U.S. has left, and even that is beginning to fray at the edges. Please watch this space. We may not wait until next weekend for the next "Gold Commentary".
