This is how we concluded our commentary last week:
Don't forget, there is a G-20 Finance Ministers meeting going on this weekend in London to prepare for the Heads of State meeting coming up late this month in Pittsburgh. A soaring Gold price is NOT a part of the agenda that those meeting in London would feel very comfortable with.
Once again, the "enemy" (of governments and their banking and financial systems) is at the gates. Lets see if this time Gold can kick them down.
It has always been just a matter of - when.
If there has ever been a week to prove the point we make in the introduction to this commentary ...
In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a POLITICAL metal. In the true meaning of the word, its price is "governed".
... the week just ended was the one to do it.
It was comical to watch. While the US (and Canada) were celebrating their Labor Day holiday on September 7, Gold traded at or about the $US 1000 level in both Europe and Asia. On September 8, Gold was above $US 1000 all day in non US trading, getting above the $US 1010 level on numerous occasions. When New York opened, the price blew straight up to $US 1009.70 in early trading. But it didn't stay there, the close for the day was $US 999.80. When we flicked on our computer on Wednesday morning (Aussie time) and saw the US Gold close, we almost fell off our chair laughing.
The rest of the week - leading up to the Friday close - was just as comical. Gold spent the entire week creeping either side of the $US 1000 level with very minor downward swings on its US spot future closes. It was clear this could not be kept up for long. Sure enough, on Friday, September 11 the spot future contract bolted $US 9.60 higher to close at $US 1006.40. That is the highest $US spot future close in the history of Gold.
For the third time since March 2008, Gold is above $US 1000. So, is it "in the clear" above $US 1000? Nope, not yet.
First of all, the Gold close on September 11 is a mere $US 2.10 above the previous high Gold close set on March 18, 2008. That's not nearly enough to be confident that the ceiling set in March last year and confirmed in February this year is broken. Remember the first major correction of $US Gold's bull run, the pullback from the highs just above $US 720 set in May 2006? It took Gold sixteen months, until the end of September 2007, to break decisively above that high. This time, Gold has been trying to decisively shatter its March 2008 high for almost eighteen months.
Second, there is still a LARGE vested interest in keeping Gold in check. However, there is a new twist here with the emergence of an almost equally large vested interest which wants Gold - especially $US Gold - to keep going higher. China is now the largest Gold producer in the world. It has been clandestinely increasing its holdings of physical Gold for years now. And most important of all, the Chinese government has recently been openly urging its citizens to buy Gold (and Silver) in physical form. Having done this, China is not likely to sit idly by while the usual "Gold damping" techniques are employed by the US and UK "paper hangers". As early evidence of this, we note Gold's reluctance to fall away from the $US 1000 level this week and its ultimate breaching of $US 1000 on September 11.
So, why is Gold going up now, just as it has been going up during the boom times of 2003-07 and the bust times of 2007 to date? It is going up for the same reason that it always goes up. Ludwig von Mises answered this question almost a century ago in his seminal work - The Theory Of Money And Credit - published in 1912:
"It is impossible to grasp the meaning of the idea of sound money if one does not realise that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of the governments. Ideologically,, it belongs in the same class with political constitutions and bills of right. ...Thus the sound money principle has two aspects. It is affirmative in approving the market's choice of a commonly-used medium of exchange. It is negative in obstructing the government's propensity to meddle with the currency system."
There is a point above the $US 1000 price for Gold at which those irrefutable arguments are once again going to take centre stage. The sooner they do so, the better for all of us.
(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 the $US 1000 level. But it did NOT break through the $US 1000 barrier. Since then, what has been traced out on this chart is the right shoulder of a gigantic "reverse" head and shoulders formation. Now that Gold has returned to levels ABOVE $US 1000, that formation is almost complete. To complete it and turn the $US 1000 "ceiling" into a "FLOOR", Gold is going to have to correct on this chart ABOVE (or at best not far below) the $US 1000 and then exceed its pre-correction high.
The first step is for Gold to get three clear "Xs" above its previous highs on this chart. That requires a spot future close of $US 1015 or higher.
In February 2009, spot future Gold closed above the $US 1000 level for the second time. While the close did not quite equal that of March 2008 in $US terms, it set new all time highs in terms of many other currencies - the Yen being an exception. That was because of the recovery of the US Dollar which had taken place since March 2008.
On September 11, 2009, spot future Gold closed above the $US 1000 level for the third time. But this time, Gold did not get anywhere near its February 2009 highs in terms of the Aussie Dollar or the Euro and remained below it in terms of the Yen. Here's the record.
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Take a look at the percentages by which three "other" currencies remain below their levels of February this year. To take the most "extreme" example, at current (September 11, 2009) exchange rates, it would take a Gold price of $US 1356.50 for the Aussie Gold price to equal the high it set last February 20.