... It had BETTER stay "strong" - nothing else is!
(Gold This Week - March 30)
Before reading what follows, please consider very carefully the charts on the Gold vs the $US Index. Note especially the daily bar chart of $US Gold and the $US Index at the bottom of the page. In early March, when the $US Gold price briefly spiked upwards into the $US 270s, the $US Index itself was accelerating upwards. Thus, for a short space of time, Gold was rising FAST against ALL major world currencies.
That, as has happened so many times before, didn't last. The $US Index continued to rise, but the $US Gold price turned around and did a swan dive. The world is not sure about the U.S. having a "strong Dollar" policy, but anyone who bothers to examine the situation has no doubt that the U.S. has a "weak Gold" policy - weak in terms of Dollars, that is.
Last Friday, March 30, the $US Index closed at 117.63, less than a point below its 2000 multi-year high of 118.45. A week later, the $US Index has closed on April 6 at 114.90, its lowest level since March 15. In this context, it is highly relevant to point out that the last time that the Dow closed above the 10000 level was - March 15.
On the U.S. stock markets this week, craziness hit new heights when the amazing phenomenon of a tech stock which was NOT reporting lower profits was seen. When Dell did this on April 5, the markets BOOMED. It was a one-day wonder though.
OK, so here's the situation. The Dollar has most certainly STOPPED going up. U.S. markets are getting desparate for ANY excuse to delude themselves that "good times" are just around the corner. In this context, consider that on April 6, Tokyo's Nikkei closed 65.6% below its all time high - set in December 1989. On the same day, the Nasdaq closed 65.9% below its all time high - set in March 2000. Japan has impoverished itself with budget deficits and lowered its interest rates to ZERO to accomplish a 65.3% fall on its markets. In the U.S., the investment community is STILL trying to convince itself that the "downturn" will soon be over. In the meantime, a major U.S. stock index has fallen further in ONE year than the Japanese market has fallen in more than TEN years. It is awesome what wishful thinking can accomplish.
There are many Americans who haven't even given up on the Nasdaq yet! There are very few Americans who have given up on the Dow. The "blue chips" MUST react to lower rates, or all is lost. But the Dow, despite the huge upmove on April 5, remains firmly BELOW 10000. And now - the DOLLAR is falling.
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 "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP. Just as the Dow had a 10000 floor for two years, so Gold has had a $US 250 floor. Now, the Dow has broken BELOW its "floor" while $US Gold still refuses to dip below its 1999 lows of $US 252.50.
A little over a year ago, the Nasdaq was a "bubble". Now, the Dollar is a "bubble". ALL BUBBLES BURST.
(Gold This Week - March 30)
Has the $US bubble burst? It's too early to say. Treasury yields, especially at the short end, are still plummeting. And so far, the $US index itself has only given up the gains it made over the second half of March. But the Dollar is definitely looking shaky, and Gold, of course, has regained (albiet only just) the $US 260 level.
"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."
(GTW - March 16)
For all those who continue to look at (physical) Gold as a "bad" investment, consider this. So far this year, the Dow is down 9.3%, the S&P 500 is down 14.6%, and the Nasdaq is down 30.4%. That's despite the big one day market boom on April 5. Gold in $US terms is down 5.0%.
In the U.S., the only "positive" investments left are Treasury debt, some corporate debt, GSE (mortgage type) debt, and some pockets of real estate. ALL of these investment vehicles are products of the great inflation (credit-creation) of the last half of the 1990s. ALL of them are vulnerable to the widening inability to service existing debt now spreading across the U.S..
The $US Gold price is also a "product" (in reverse) of the great credit-creation boom of the 1990s. As THE alternative to the Dollar and all the paper investments based on the Dollar, the Gold has suffered the opposite of a "bubble", hence our useful word - "elbbub". Over the past week, the fact that the Gold "elbbub" cannot be deflated any further has once again been illustrated. We can be certain that for Gold, the downside risk is VERY limited. We can't be certain of that in regard to almost any other type of "investment".
Gold's upside? Well, even to get back to its old "floor" of $US 300, Gold has to rise 15.4% from its present level. Which would you say has the least risk and the best upside potential - Gold - or anything else in the cornucopia of "paper investments"?
