In a most interesting development, Mr Ambrose Evans-Pritchard writing in the UK Daily Telegraph newspaper has reported that Citigroup has sent out an "internal client note" predicting that Gold is poised for a "dramatic surge" and could "blast through $US 2000 per ounce by the end of next year". There have, of course, been no shortage of predictions for Gold to go to "$US X thousand per ounce" in the not too distant future. This one is especially interesting because of the source. Given the fact that the Fed and the Treasury just this week agreed to guarantee $US 306 Billion "worth" of toxic assets currently held by Citigroup, one would have thought that this type of prediction was not part of the deal.
Nonetheless, there it is.
As you know, Gold peaked on a spot future closing basis back in March this year. At that point, it had risen by 300 percent (that's actually a quadrupling in price) since its 1999-2001 lows. At its spot future close of $US 816.20 on November 28, Gold had risen by about 226 percent (or about three and a quarter times) since those lows. There is nothing else in the way of financial (paper) assets, or for that matter real assets like other commodities, which comes close to that record.
An even more interesting development than the Citigroup prediction is the fact that Gold's stellar performance over this decade is finally being recognised more and more widely. More to the point, Gold's record in the midst of the global deflationary collapse we are mired in is now coming to the fore. Yes, Gold is still well below the highs it set earlier this year. But global stock markets are well below the levels they reached when Gold was languishing well below $US 300 seven years ago. Yes, Gold has fallen since the start of the great commodity price collapse in July. But its fall is FAR less than any other commodity. As of November 28, Gold was down 2.6 percent in US Dollar terms in the face of a US Dollar which has risen 13 percent on a trade-weighted basis. Over the same period, the Dow is down 33.5 percent on the year and most other major global stock markets are down more, in many cases MUCH more, than that.
All of this is easily perceivable just by looking at the numbers. But all of it has been ignored or missed altogether by most people. The best evidence of this comes from the performance of Gold stocks in their major markets in the US, Canada, London, South Africa and Australia. In every one of these markets, Gold stocks have been absolutely smashed flat. Yes, they have recovered to some extent with Gold's rise this week but their year to date performance has been abysmal.
To give a concrete example using the Australian Gold stock index, the XGD, on December 27, 2007, Gold rose above its present level of $US 816 for the first time on the way UP to the $US 1000 highs it set in mid March 2008. When Gold hit that $US 816 plus level on December 27, the XGD closed for the day at 6012. On November 28, 2008, eleven months later and with Gold at $US 816 plus, the XGD closed at 3677. No change in the $US Gold price - a fall in the XGD of 38.8 percent.
Looking at the Aussie Dollar Gold price over the same period, the picture is even more "skewed". On December 27, 2007, Gold was worth $A 944 an ounce. On November 28, 2008, Gold was worth $A 1246 an ounce. Thus, while the Aussie Dollar Gold price was rising by 32 percent, the index of Australian Gold stocks was falling by 38.8 percent. You would be hard pressed to find a similar "discrepancy" in the past.
Why this "mistrust" of Gold - to this point at least - in the midst of the biggest paper money meltdown in the living memory of most people? In the first place, most people have little or no understanding of the underlying causes of what is going on in the paper markets. There are rapidly growing numbers of people who would now acknowledge the old adage - "cash is king" - but few of them would take the next step and ask themselves - "which cash"? How long can paper money go on retaining and even increasing, as it is at present, its purchasing power in the face of the accelerating creation of it out of thin air by governments and central banks?
Then there is the simple fact that in the midst of what is now universally acknowledged as a "financial crisis", Gold is still languishing well below the $US highs it set more than eight months ago. Surely it should be MUCH higher than that. Unfortunately, this attitude does not take into account the antipathy that all monetary authorities have against Gold and the fact that, as an eminently liquid asset, Gold has been sold off to meet margin calls and to pay down debts on "assets" which have become totally illiquid. The widespread conclusion is that since Gold too is down this year, it cannot be the "hedge" against financial calamity that all the Gold "experts" said it was. But Gold HAS protected its purchasing power this year, better than almost anything else. The facts permit no other conclusion.
Finally, as far as Gold stocks are concerned, these are NOT Gold, they are shares in the ownership of a company which might or might not be producing Gold. The scale of the liquidation across all paper markets has become so big that almost everything is tarred with the same brush and has been sold off accordingly. Gold stocks have not been immune, they never are, although the discrepancy between the performance of the metal itself and Gold stocks has seldom been as big as it has been this year.
In reality, Gold is fulfilling its historic role of protecting the purchasing power of its owners very well indeed in the midst of the financial carnage going on around it. This has been a fact for almost the whole of this decade, but it is only NOW, literally over the past week or two, when it has begun to be realised by a quickly growing number of people. The physical demand for Gold has never been higher. It has reached the point where official mints all over the world are having to refuse to take new orders because of a growing inability to meet them. But in the context of the global financial system as a whole, even with the decimation it has suffered this year, that physical demand for Gold is still microscopic.
The fact is that in the process of trying to save the present global monetary system based on the demand for debt, the monetary authorities, led by those in the US, are destroying it. The US Fed and Treasury have thrown any remnants of "caution" to the four winds and are literally creating new "Dollars" out of thin air at a pace never before either contemplated or approached. In such circumstances, Gold ALWAYS comes out on top, how can it not? We are now starting to see the first glimmers of that simple historical fact being recognised on a much wider basis.
(Chart appears here in original anlysis)
As you can see, a new low was hit on the chart two weeks ago when spot future Gold closed in New York at $US 705 on November 13. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early this month. Then came the big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" has now been emphatically confirmed as Gold has risen by just over $US 100 since that November 13 low.
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. That situation was reversed with the onset of savage global deleveraging. But this week, Gold turned up again with a rush. It will be interesting which of these currencies hits a new low in terms of Gold first. As of November 28, Gold in Euros was less than three percent below the all time high it set on October 8.
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