"Yes, we know it's predictable. Yes, we know it's wearing. Yes, we know that once again, it seems to have "worked". But we are not at all sure that it is going to go on working for very much longer."
(Gold Last Week - March 2)"
Remember when $US Gold "spiked" from $US 256 to $US 268 in late February? Well, that was our comment when it came back down again from those dizzy heights. Last week, Gold spiked again, reaching as high as $US 272.50 (spot future close) on March 12. But the rest of this week is familiar history. Over four days, Gold in $US terms has slumped $US 14.
When Gold spiked in late February, every "Gold analyst who could get in front of a camera or a microphone lost no time telling anyone who was interested (and there weren't many) that this was an "abomination" (sorry, we mean an "anomaly") and it wouldn't last. They were right.
Then, last week, while $US Gold was spiking yet again, all of the stars of the late and very lamented bull market were making the rounds telling everyone that the U.S. stock market had "bottomed" and NOW was the time to buy. No one bothered to talk about Gold.
Well, these analysts got it quite horrendously wrong. This week, the Nasdaq has dipped below 1900 and the Dow has had a week in which it lost nearly 900 points and fell well below the CRUCIAL 10000 level.
This week has seen a "sea change" in markets everywhere. The Japanese market is literally on life support as the "Authorities" keep pouring the savings of the Japanese people into it in an "intravenous" flood. The rest of Asia has tanked. European markets are flagging badly. And U.S. markets are in a semi-controlled crash.
The result has been a literally lemming-like rush into the U.S. DOLLAR. Gold has fallen further against the U.S. Dollar than the Dollar has risen against all its trading partners this week, but not much further. Everyone is rushing into Dollars. Even U.S. mutual funds are doing it, cashing out of their foreign investments and repatriating capital to deal with the carnage on the domestic markets.
The whole sorry mess is coming to a head. Almost all of the "gurus" of the great U.S. economic bonanza have been discredited. Americans, who have ALREADY seen about $US 4 TRILLION wiped of the value of their stock holdings over the past year, are almost ready to throw in the towel. If the Dow stays below 10000 and keeps on falling, they WILL throw in the towel. And if/when they do, things could get very ugly - very fast.
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?
A week ago, a Gold "elbbub", gave signs it might have been about to turn into an actual "market". Now, its back to "elbbub" status. Yes, the Bank of England did hold another 25 tonne "auction", but that was a side show. The main event was the U.S. DOLLAR!
The chart of $US Gold is above. Here are the charts of Gold in the other currencies we cover. Pay particular attention to Gold in Aussie Dollars - and in Japanese Yen.
Here is Gold in the other currencies which we cover
Gold in Yen
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
See, Gold's fall this week was a DOLLAR phenomenon. In fact, the entire global market meltdown this week is a DOLLAR phenomenon. All events are converging on a mad rush into Dollars, one which threatens to be even bigger than the mad rush during the Asian crisis of the end of the 1990s
There's only this difference. In the late 1990s, foreigners put their acquired Dollars to work buying stocks, land, physical plant and equipment and everything else that wasn't nailed down. This time, there are only Dollars and Treasury debt. All other U.S. investment classes are melting down as fast or faster than those everywhere else.
TWO $US 10 price spikes in Gold in less than a month is a promising start. Now. Gold in $US terms is back to where it started again.
Everyone, inside and outside the U.S., is demanding the Fed cut rates on March 20. An 0.50% cut is NOT acceptable. Most are demanding 0.75% or even 1.00%. If Mr Greenspan and the Fed oblige, the potential is there for the Dollar to make a very sharp U-Turn indeed - just as Gold has done this week
We have said this before, the U.S. Dollar and Gold cannot co-exist - AS MONEY. That was proved in the 1930s, and in the 1960s and 1970s too. The great GOLD holding down operation which has hit warp speed since 1996 is building to a crescendo. And right now, there is no way of knowing whether the final trumpet will be a Gold Dive and a Dollar explosion, followed by a fantastic reversal, or whether Gold will hold its recent lows and start to rise more sedately again.
It depends how desperate the global financial authorities are, and how long the lemming-like rush of what were once investors into U.S. Dollars lasts. Stay tuned.
