At its close of $US 975.00 on February 29, the spot future Gold price is now a mere $US 25.00 or 2.5 percent below the BIG number - ONE THOUSAND US DOLLARS. Gold is, of course, at an all time high in US Dollar terms, a situation that very few people have yet realised despite the increasing coverage it is getting in the mass media. This is not surprising, even when you consider the following:
We have heard a lot of comment about why Gold is still "below the horizon" in terms of where most people are looking in an increasingly desperate attempt to eke a gain out of the investment markets or even to preserve their capital. And while it is true that Gold has become more of a talking point since it exceeded its January 1980 highs in early January 2008, there are still very few people actually buying it. There are several reasons for this too:
If you think back to the early 1980s when the Dow was challenging the all time highs it had set in 1969 and slightly exceeded in 1972-73, you can see a parallel to what is happening with Gold today. It took quite a while, until mid-late 1985 in fact, for the majority of people to finally be satisfied that the Dow wasn't going to fail at the 1000-1100 level as it had done for the previous 15 years. Once that happened, the markets took off.
For more than 25 years, the absolute "ceiling" for Gold, and a level it had not since approached, was the $US 850 closing level ($US 873 intraday high) set in January 1980. That high has only been comfortably exceeded in the last month. Spot future Gold closed above $US 850 for the first time since January 1980 on the first trading day of 2008. It closed above the January 1980 intraday high for the first time on January 8, 2008. And now, it is nearing another huge psychological hurdle, the $US 1000 level.
There is always a huge psychological change of outlook which attends any asset which achieves a "milestone" price. This is true of a long-term "penny stock" which trades above $1.00. It is true of a commodity which has traded in double figures and then moves on to triple figures. The recent breaching of the $US 100 level by oil is an example. And then there is the transition from three figures to four. This is the one that the Dow made in the early 1980s and the one which Gold is on the verge of making now.
Consider Gold in the 1970s. for nearly 150 years, Gold was "priced" in the US between $US 20.67 and $US 35.00 an ounce. Yes, these were government-mandated prices, but that does not change the fact that people were used to them. When Nixon closed the Gold window in 1971 and decoupled Gold from the US Dollar, Gold began to move up. It hit $US 100 in 1973 and almost $US 200 at the end of 1974. Then, there came a dramatic correction during which Gold fell back to - BUT NOT BELOW - the $US 100 level. What was once looked at as an absurdly high price for Gold had become a bargain price. Gold's correction stopped at $US 102 in August 1976. A little under three and a half years later, it hit $US 850.
From then until the end of 2007, Gold traded in an absolute range of $US 255 - $US 850. For most of that period, it traded in a much narrower range between $US 300 - $US 500. Up until late last year, there were very few Gold analysts or individuals who watched Gold who were seriously suggesting that the metal might make it back to $US 850, let alone surpass it and go on to challenge the $US 1000 level.
When any financial asset or investment has a long term history of trading at a certain one or two or three digit price, as long as it remains in that range, most people tend to look back at its history rather than forward at its potential. The "switch" from one outlook to the other is the crossing of the threshhold. A penny stock trades above $1.00 A market index or a commodity price breaks above 100 - or 1000 - for the first time. The attitude changes from "careful - it's at the top of its range!" to "Oh boy - how high can it go?"
That is what is in store for Gold, as and when it exceeds $US 1000 for the first time. The monetary powers that be are well aware of that fact. That is why the Bush Administration has "let it be known" that they are not averse to IMF Gold sales. So far, that hasn't worked very well, has it?
It is impossible to say how much resistance Gold will hit when it reaches or marginally exceeds the $US 1000 level for the first time. We don't even know whether there will be any resistance at all. Gold might knife straight through the $US 1000 level and accelerate still further. But historically, that has seldom happened with any investment vehicle. We would be surprised if Gold does not hit some "heavy weather" at or about the $US 1000 level.
Whatever happens, the situation in the paper economies of the world and the plumbing of new lows by the US Dollar over the past week makes us certain that Gold will exceed - and stay above - the $US 1000 level. It may, or may not, face a consolidation phase or even a correction in the meantime. Once that does happen, the attitude change described above is just a matter of time. It has always happened, there are no exceptions.
On Friday, February 29, spot future Gold rose to another all time high when it closed at $US 975.00. As you can see, this pushed the high on the chart well clear of the previous $US 927.10 high set at the end of January. There is a big new breakaway gap on the chart. On a point and figure chart, especially a long term chart, a breakaway gap is usually a sign that the price increase which established it is going to accelerate. Over the past two weeks, it certainly has. Since the "Presidents Day" holiday on February 18, Gold has risen $US 73 or just over 8.0 percent.
(Chart appears here in original analysis)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. Now on the last day of February, Gold has established new all time highs in all the currencies on the chart - except the Japanese Yen. Over the last two days of this week, the Yen gained more than Gold did against the US Dollar. Just one more unmistakeable sign that the "carry trade" is coming to an end.
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