The world has just stumbled through yet another "Heads of State" meeting, this one involving (at least initially) the heads of what is called the "G-8" group of nations in Italy. The leaders of the US, the UK, Canada, Japan, Germany, France, Italy and Russia got together to discuss, yet again, the crisis gripping the world's economies and financial markets. To borrow an indispensable quote from Winston Churchill, used to describe the 1930s UK government from which he had been banished - their ruminations were:
"... decided only to be undecided, resolved to be irresolute, adamant for drift, solid for fluidity, all-powerful to be impotent."
What WAS decided at this latest summit was that it is as yet "too early" to be contemplating rolling back the tidal wave of government borrowing and spending deemed necessary to "stimulate" the economies of the participants. Mr Obama and Mr Brown of the UK were "adamant" on this issue. The final "communique" however, typically skirted the whole thing - "Exit strategies will vary from country to country depending on domestic economic conditions and public finances."
The rest of what came out for public consumption was the usual pablum, more or less unchanged from what it has been for years. All the leaders pledged not to devalue their currencies. They all gave political lip service to the "burning issue" of global warming. They discussed "aid" to the developing world, a topic which is becoming increasingly ironic as most modern economic "aid" has become loans flowing from the "developing" to the "developed" nations. And they all promised to show up at the NEXT gathering - the G-20 meeting in Pittsburgh in September.
There was, of course, no public discussion whatsoever about either the future role of the US Dollar as the global reserve currency nor what new concoction might - someday - take its place. In this context, a quote from British Prime Minister Gordon Brown is quite (no doubt inadvertently) illuminating: "To talk about the long-term future of the world economy and the arrangements that are necessary is something the world has got to do, but I don't want to give the impression that there's a major change about to happen around the corner which will mean that present arrangements are disturbed."
Since the current global crisis began two years ago, the US government and financial "authorities" alone have borrowed and spent and/or pledged for the future some $US 13 TRILLION Dollars to preserve "present arrangements". These actions have been duplicated to a greater or lesser extent proportionally by nations all over the world. Has any of this borrowing and spending improved the economic situation in any of the nations which have applied it? Well, to take the US as an example, the answer is clearly NO. About one in every nine Americans is now on food stamps. The number of homeless are now breaking all records and increasing by the day. Arrears on and defaults of debt of all descriptions are skyrocketing. Those who can save are saving. Those who can't are desperately trying to match income to outflow. Nobody is spending.
Contrast this to the actions of their political leaders as exemplified by those attending the G-8 meeting. And for much more on this ever more glaring contrast, see the upcoming Mid July issue of The Privateer.
For the whole of this year, there have been growing rumbles coming out of more and more nations concerning the unsuitability of the US Dollar to continue its role as the world's "reserve currency". These rumbles never see the light of day when the Heads of State get together for one of their ever more frequent "Summits". The reason for this is simple. Nobody REALLY wants to "rock the boat". The minor reason for this is the concern of US creditors (notably Asian US creditors) that any concerted attack on the current role of the US Dollar will destroy the value of the US debt paper they have accumulated.
That's the minor reason. The MAJOR reason is that by its nature, ANY "reserve currency" is a political creation designed as a credit card for governments. The popular definition of a "currency" is anything "accepted" as a medium of exchange. This definition, like so many others coined (pun intended) to justify government practices, is deliberately misleading. Government issued "fiat money" is not "acceptable" to anybody - it is legally imposed on them by government as the ONLY medium of exchange allowed to circulate.
The creation of a government monopoly on the issuance of "money" is what has led to the present almost all embracing power of governments everywhere OVER their citizenry. This constitutes Mr Brown's "present arrangements". Short of complete economic and financial collapse or the real and present danger of imminent revolution, no government has ever given up those "arrangements".
To seriously discuss "alternative reserve currencies" opens the door to a discussion of an alternative medium of exchange altogether. That's one problem faced by the overlords of our "present arrangements". But to refrain from any such discussion while the present monetary system is steadily disintegrating before our eyes is not an alternative solution. Gold isn't going to "go away", no matter how long it is ignored by governments, Treasuries and central bankers. And, of course, they are not ignoring Gold, as witness the sudden $US 20 drop on the spot future Gold price in New York on July 8, the day that the G-8 Summit convened. But as far as any "public discussion" of Gold's possible future role in the global financial system? Well, it is already well underway almost everywhere except in the public utterances of the present powers that 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. Gold went straight up on this chart for six weeks - from the start of May until early June. The close below $US 955 on June 9 turned the chart down. With the fall below $US 910 on July 8, the downswing had retraced about 60 percent of the previous rise. We still await the upturn on this chart.
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. They were not taken out when Gold hit $US 1000 again in May. Right now, Gold in US Dollar terms is much closer to its all time highs than it is in terms of any other major currency..
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