There are some truly amazing "revalations" coming out of the G-7 Finance Ministers and Central Bankers meeting taking place this weekend in Rome. No less a luminary than Canada's former Prime and Finance Minister, Paul Martin, informed his breathless audience that: "The world has changed". Not to be outdone, the present Prime Minister of Great Britain, Gordon Brown, let slip the momentous revaletion that: "The world is bigger than the G-7". Be still our beating hearts. But there were some comments which got a bit closer to the mark. Nobel (economics) Laureate Joseph Stiglitz made the point that the tone of the meeting was: "Effectively recognition by the G-7 that they don't have the money. The money is in Asia, the Middle East."
Well, there is certainly no doubt that a lot of US Dollars and Dollar denominated financial assets are currently resident in those two areas, and many others, but that is hardly the point. As Mr Obama, Mr Geithner and Mr Bernanke have made very clear indeed, there is to be no shortage of US Dollars. It is this, much more than the concern about where the Dollars that are already in existence reside, which is becoming the focus of concern amongst the G-7 and G-20 nations and pretty well all the other nations too.
This week, a former advisor to the Chinese Central Bank let it be known that China would seek guarantees that its almost $US 700 Billion of US government debt will not be eroded by "reckless policies". The gentleman did not elaborate on what specific assurances would be acceptable to the Chinese government. Bloomberg quoted an economist at the Agricultural Bank of China (China's third largest bank) as follows: "In talks with Clinton, Cina will ask for a guarantee that the US will support the Dollar's exchange rate and make sure China's dollar-denominated assets are safe. ...That would be one of the prerequisites for more purchases."
Emphasis by The Privateer. Hilary Clinton, Mr Obama's Secretary of State, visits China on February 20.
Leaving aside the intriguing question of just how Secretary Clinton or anyone else in the US government or the Fed can "guarantee" the US Dollar's exchange rate, here we see the world's major concern coming into focus. Is the reserve currency of the world going to remain viable in the face of the HUGE borrowing plans of the government of the US? It was said the same Bloomberg article that the Chinese concern was that if Mr Obama's stimulus package doesn't work, the Fed may have to print money to cover the deficit.
This is absurd, it is laughable. The US has always "printed money" to cover their budget deficits. They call it Treasury debt paper. Granted, the Fed has not (often) in the past had to get involved in actually buying this paper with fresh off the presses $US 100 Federal Reserve Notes, but the principle does not change for all that. Central Banks were "invented" in the first place to facilitate governments (mostly Monarchs in those days) living beyond their means.
As we said here last week, Gold is simply "waiting in the wings". It's call to centre stage may come with the announcement of Mr Obama's stimulus package early next week. It may come in the aftermath of Secretary of State Clinton's visit to China late next week. Or it may come when the Fed finally bites the bullet and starts to actively monetise the debt paper pouring out of the US Treasury, a move they have been publicly contemplating since late last year. But come it surely will.
Intraday this week, Gold traded as high as $US 950. In terms of most other major global currencies (more on that below) it has set new all time highs over the past two weeks.
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first 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" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28
As you can see, that rally in the $US Gold price has continued. In December, Gold broke above the steeper of the two downtrend lines on the chart. The correction in the first half of January brought the price back to the line. Since then, Gold has gone straight up. And with its close of $US 927.30 on January 30, Gold made it back to the second and LAST downtrend line. And now, that line has been penetrated. On this chart, the only resistance point left is the March 2008 high just above the $US 1000 level on a spot future closing basis.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. This week, Gold almost duplicated its all time high in Aussie Dollar terms and went on to set another all time high in terms of the Euro. In fact, the Japanese Yen and the US Dollar (and currencies still "pegged" to the US Dollar) are about the only paper moneys left against which Gold has NOT (yet) hit an all time high this year.
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