"Truly, the financial world is a fantastic spectacle as we enter the month of October."
Gold This Week - October 3, 2008
By now, you will have digested the raw numbers of a week which will surely go down in financial history. We have much more to say about it in the Mid October issue of The Privateer (Number 614 - published on October 12) but a few numbers here will at least give the flavour of it. The European stock markets had their worst week ever. In Asia, it was carnage across the board with the Nikkei, for example, almost achieving back to back 10 percent falls on October 9-10. The CRB (Commodities Research Bureeau) index had its biggest nominal weekly fall ever. The Dow and the rest of the US stock indices crashed. On October 10, the intraday range on the "big board" was in excess of 1000 points! Currencies gyrated with the US Dollar the major beneficiary of a global panic rush into literal cash - the US Dollar is still the world's reserve currency and top international trading currency. Oil plummeted well below $US 80.00.
Precious metals fared comparatively well. Silver, it is true, did another of its crash dives on October 10, down $US 1.27 on the day. And Gold had a HUGE trading range on the same day in New York. It got as high as $US 921.00 early in the session only to plummet to a spot future close of $US 859.00 on the rush into cash. Even with that, Gold was up in $US terms on the week, something that could not be said for almost any other asset, with the singular exception of the US Dollar itself.
Of course the fact that Gold did fall, quite precipitously, on October 10 was all the doing of the mad crew in New York. The London AM "fix" on the day was $US 918.00. When New York trading started, Gold opened at $US 909.00 and bolted all the way up to $Us 921.00. Then came the mad sell-off - along with everything else - in the scramble for "cash".
Politicians, Treasurers and Central Bank chiefs across the alphabetic roll call of nations from Albania to Zaire spent the week desperately screaming that they had the situation under control. Even President Bush addressed the nation twice (or was it three times?) over the week, surely an unprecedented phenomenon. Nation after nation announced that it was going to "guarantee" ALL the deposits in its banking system, regardless of their size. Co-ordinated rate cuts were announced to great fanfare, only to fan the selling flames even hotter.
At the end of the week on October 10, with the markets safely closed and licking their wounds, the G7 Central Bank chiefs and Finance Ministers' meeting in Washington DC came out with their statement. It promised concerted action to "fix" the system. It offered no specifics whatsoever. There are even rumours afoot as we go into the long Columbus Day weekend in the US that global markets might be "shut down" next week. As this is being written, these remain rumours. By the way, Columbus Day is a bit of an anomaly as far as US public holidays are concerned. Banks, government offices and many markets (the bond market being one) are closed, but traditionally the stock market remains open.
As always happens in the early stages (yes we said "early stages") of a deflationary collapse, cash is now KING all over the world. Gold's time has not come yet. Having said that, while the desperate fight to keep the Gold "price" down on the paper markets is still being fought with comparative success, the demand for physical Gold is immense and growing. And the supply has all but vanished. It is still comparatively easy to buy a Gold contract on the futures market. It is hard to the point of near impossibility to buy an actual piece of physical Gold, be it a bullion or numismatic coin, a bar or wafer. And if one can find physical Gold to buy the premium above the official Gold "price" is setting unprecedented highs.
Every conceivable (and many inconceivable) remedy is being offered to stabilise and fix the system. The blame is being sheeted home to every part of the political, economic and financial system in ever diminishing circles. Meanwhile, the paper wealth of billions of people is almost literally evaporating into thin air. And here lies the rub.
Even at this extreme point in the unravelling of the system, there is as yet little or no discussion of the root cause of the financial meltdown. This remains what it has always been - the absolute absence anywhere in the system of any semblance of SOUND money. Under the present system, it is easy to add "liquidity". One just enters some numbers in the banks' computer terminals. It is equally easy to guarantee ALL bank deposits. In extremis, one just prints the requisite number of fiat paper notes.
The problem is that every move in this direction makes the situation WORSE. The big change that the week just ended has brought about is that NOW - the whole world can SEE that it is making the situation worse. Each attempt to shore up the system, with liquidity injections, bailouts, deposit guarantees and sychronised rate cutting has accelerated the markets' plunge downwards. Every one of them has frozen the credit mechanism even more thoroughly.
The "confidence" in paper markets has been dealt a blow from which it will not recover for a LONG time. The "confidence" in the monetary and financial "authorities" has suffered a like fate. Public credulity is on very shaky ground indeed. The one "faith", and we use the term advisedly, which still remains is a faith in (paper) money. When all else fails, and more and more people are seeing that it has, get CASH! The problem is that modern CASH - fiat paper money resting on a promise to "pay" - is the root cause of what we see happening all around us.
Historically, it always has been. Historically, a situation like the one we face at present has always been the precursor to a monetary revolution. What is needed now is not revolutionary, but evolutionary. Sound money has always existed, ever since the concept of a medium of exchange was first discoverd almost three thousand years ago. It remains, as it has always been, Gold.
We await the discovery of that simple truth, buried under a mountain of economic and financial "theories" which have no more relevance than did the alchemists ancient tomes dealing with the "transmutation" of Gold out of the "base" elements. The events of the week just ended has brought that discovery much closer.
(Chart appears here in original analysis)
As you can see, the price action on this chart took Gold well below the uptrend line which has supported the entire bull market from its start in 2002. We also have descending lows on the chart - the $US 1000 high set in March and the $US 975 high set in mid July. Gold slid all the way down to the $US 750 level on this chart just three weeks ago. And then came the HUGE rebound which has stalled over the past two weeks as the paper "asset" markets went into free fall.
We began the table below in 2007 and have extended it into 2008, even though Gold in all four currencies in the table remain well above their 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. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. This week. on October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies.
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