Here is a very ominous chart indeed. It will be familiar to all Privateer subscribers as being one of the charts we update with each new issue of the newsletter. Please note the far right column of "Os". This is the fall in the USDX which as taken place over the past week, sending the US Dollar well below the trading range in which it has been trading for most of the year. This week, the USDX lost 2.06 points or 2.4 percent. Most of that fall came on Friday, May 8 when the USDX lost 1.46 points. What happened to Gold on the day? Almost nothing, the spot future contract fell by $US 0.60. Longer-term Treasury yields were quiescent too. After rising precipitously for most of the week, yields on the Treasury's 10 and 30-year paper fell slightly on the day. And of course, over on the stock market, the Dow bounded upward another 165 points to a new post March 9 high of 8574.
Last week was the week of the "swine flu" distraction. This week, the whole thing has evaporated and the "economy" has come back onto centre stage. The reason for this is, of course, a plethora of "encouraging" numbers. While the latest US unemployment RATE is up - to 8.9 percent - job losses are reported to have fallen from an average of 700,000 in the first three months of the year to 539,000 in April. Three hundred million people in the US are asking each other - "do you know anyone who's been employed lately?" - with overwhelmingly negative results. But these figures are OFFICIAL - and as such, not to be either questioned or examined.
In another development, the major US banks have all passed the "stress test" administered by the US Treasury. Again, this is OFFICIAL. Any suggestion that the tests were specifically designed to be "passed" by the banks is not to be discussed by anyone. Certainly nobody on Wall Street would be so crass as to question them.
And so, we have the fatuous claim that the "green shoots" of economic recovery are now starting to poke into the sunlight above the detritus of the now soon to be nothing but a memory "recession". This must be true. All the government numbers say so. Mr Obama, Mr Geithner and Mr Bernanke say so too. And in case anyone has any qualms about the possible future implications of the $US TRILLIONS which have been thrown at the economy already, Mr Obama has recently declared that he has found $US 17 Billion worth of "cuts" which he is going to apply to his 2009-10 budget. That should fix everything.
Do you read the financial news? You should - one can estimate pretty closely the true situation from the lengths the powers that be are going to in order to hide it. It is tempting to conclude that the government and their sycophants in the financial system regard their "audience" as ready and willing to swallow literally ANYTHING. In reality, of course, they are stuck with their policies, from which they dare not veer, so they have no choice but to dress them up as best they can and hope that they can continue to be made palatable. The last resort is to rely on the old conviction that "you can't fight city hall", no matter how absurd their actions become. But the problem for the powers that be is that they have to "deliver", and on their present policies, that is impossible. You cannot "fix" a collapse in credit by refusing to value so called "assets" which are dependent on the continuing flow of this credit to have any value at all. Nor can you do it by throwing worse "money" after the bad has already been exposed as worthless. But you can destroy a financial system and a money with such policies.
This week, we have seen the two biggest markets in the world, the market for Treasury debt paper and US Dollars, take a severe hit. Treasury yields have been rising inexorably since the Fed lowered its rates to the vanishing point last December. This week, that rise accelerated. That proved too much for the exchange value of the US Dollar which plummeted this week. Gold did no more than "mirror" this US Dollar fall, it barely moved in terms of most other world currencies. In terms of some of them, the Gold "price" actually fell this week.
It has been said here many times but cannot be repeated too often. There is a gargantuan global consensus that the "price" of Gold in terms of all paper "moneys" in general and against the US Dollar in particular MUST be kept under control. The global and monetary system which has been built up since the last official connection between Gold and ALL forms of paper money was erased in 1971 would be utterly impossible under any type of Gold discipline. The level of power which has been amassed by governments released from this discipline would likewise be impossible. "They" have got it. "They are not going to give it up lightly.
There is only one recent historical precedent for an entrenched political establishment in control of an empire giving up their power without a (literal) fight. That is the abdication of the Communist party of the USSR in 1991. The equivalent at present would be for the governments and central banks of the world to give up, get out of the way, and let inexorable economic LAW run its course. It will anyway, but the longer it is delayed, the harsher the final sentence will be.
(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 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold retreated to just below the $US 900 level in three moves down. What is being traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 was broken early in April. Over the month of April, a tighter range between $US 870-910 was established. Now, Gold has broken back above that range. The "right shoulder" on the "reverse" head and shoulders formation is getting wider.
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. On February 20, those highs were taken out when Gold hit $US 1000. With Gold now more than $US 100 below that level, and with several currencies having risen against the US Dollar since then, Gold is off substantially. But as before, the only thing we still await is for that $US 1000 level to be broken through on the upside.
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