On this week, one in which a new President of the United States was voted into office (thankfully decisively), Gold just kept on doing what it always does in times like these. In terms of all fiat currencies, the US Dollar in particular, it continues to be the basic "commodity" which has fallen by far the least in the midst of the rampant credit-money DEFLATION now swamping the world. On the week, Gold was up just over two percent in $US terms. On the year to date, the Gold price is down a little over $US 100 or about 12.4 percent. There is no other commodity which has not sustained a loss in $US terms of at least twice that, and many have sustained losses of four or five times that amount.
The reason for this is simple. Besides being a commodity useful in the making of economic goods, Gold has another and much more important value to actual and potential holders. It is an historically proven medium of exchange, a money. It is also an "asset" which does not depend in any way, shape or form in the ability of anyone to service or repay a debt. Please note that we are here talking about physical Gold itself, not about any paper claim to Gold.
It is easy to produce paper claims to Gold. It is not easy, and it is costly, to produce the physical metal. That is why the "shear" between Gold "prices" on the paper exchanges and the amount being paid for physical Gold in coin or bar form is widening inexorably.
The major development with the paper Gold "price" over the past week was that it did not fall below the lows set on October 23 and almost matched on October 31. Paper Gold closed at $US 718.20 on the US futures markets last Friday, a mere $US 3.50 above the $US 714.70 spot future close it had reached a week earlier on October 23. Had it fallen further this week, say to and even below the $US 700 level on a spot future closing basis, then Gold would have signalled another leg down price. Instead, the price bolted all the way up to $US 757 on election day in the US. This gives a much more solid "support point" for the paper Gold price at or about the $US 715 level.
Now, as we enter the "interregnum" between Mr Obama's election and his inauguration as President on January 20 next year, we may see a short hiatus in the frantic economic and monetary manipulation which has spiralled to grotesque heights over the past two months. This is true if for no other reason than the fact that there is nobody in full control of the "ship of state" at present. We stress, this MAY be the case. It is by no means assured. Not with the Washington Heads of State Summit convening next weekend. Amazingly enough, it is not yet known whether Mr Obama will even attend this meeting. It would be absurd for him not to do so.
If you heard or read Mr Obama's acceptance speech in Chicago late in the evening of November 4, you will recall Anne Nixon Cooper, the 106 year old lady who has become an instant media star in the US after having been mentioned - at length - in Mr Obama's speech. In his speech, Mr Obama wanted us to reflect on all the history that this lady has seen over her long life and all the travails she has seen her nation face and overcome. Anne Nixon Cooper was born in 1902. What she has also seen, but what Mr Obama did not talk about, is the whole panorama of the destruction of sound money in the US and throughout the world. Anne Nixon Cooper was 11 years old when the Sixteenth Amendment which brought in the income tax and the estatblishment of a US central bank - the Fed - took place in 1913. She has seen EVERYTHING which followed. We who are younger have only lived through part of it.
Frederic Bastiat put it very well in context when he wrote this:
"Once an abuse exists, everything is arranged on the assumption that it will last indefinitely; and, as more and more people come to depend upon it for their livelihood, and still others depend upon them, a superstructure is erected which soon comprises a formidable edifice."
"The moment you try to tear it down, everybody protests; and the point to which I wish to call particular attention here is that those who protest always appear at first glance to be in the right, because it is easier to show the disorder that must accompany reform than the order that should follow it."
The path from Gold to monetary chaos has been a long one, but we are now nearing the end of the road. The road will end when the "disorder" which accompanies the abuse of money is seen to be worse than the "disorder" which would inevitably accompany a return to REAL money. Wouldn't it be nice if Anne Nixon Cooper could see THAT happen.
(Chart appears here in original analysis)
As you can see, the $US 20.30 fall on October 31 turned the chart down one more time. On October 31, we were one "O" above the October 23 low. The close of $US 757.30 on November 4 turned the chart up again and established support at or about the $US 715 level. Right now, it would take a close of $US $US 730.00 or lower to turn the chart down again. And even if it does turn down again, the chances of a precipitous fall have been greatly lessened by the support level having been established.
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. Three weeks ago, 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. Now, that situation has been reversed with the onset of savage global deleveraging.
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