What the G-20 did manage to do when they met last week was to get the Gold price back below $US 1000, for a few days anyway. They also managed a nine page communique chock full of assertions and promises all of which boiled down to the statement that the glboal elimination of interest rates along with stimulus and guarantee packages of all descriptions had "worked". For much more on this, see the Early October issue of The Privateer (#639 - published on October 4).
But nowhere in the communique, or in any of the reporting surrounding the Pittsburgh G-20 summit was a word spoken about money itself, either currencies in general or the world's reserve currency, the US Dollar, in particular.
This weekend, the finance officials and central bankers of the G-7 - now superseded by the G-20 - are meeting in Istanbul, Turkey as the usual adjunct to the annual IMF/World Bank meetings. Rumour has it that the G-7 may "break with tradition" at this meeting and not issue a statement on the global economy and particularly currencies at all. It is now being stated that the G-20 is the forum to do this, and that it will take a few rounds of G-20 meetings to establish a "collective opinion" on currencies.
How very convenient, if rather risky. Clearly, nobody wants to talk about money right now, at least not in any meaningful way. That being the case, they are reduced to the same old tune. In the lead up to the G-7 meeting, Treasury Secretary Geithner was heard trotting out the old chestnut that "...a strong Dollar is very important to the US." Ben Bernanke went Mr Geithner one better, letting everyone know that there is no "immediate risk" to the US Dollar. "Immediate risk"? What about the day after tomorrow or next week or next month or ...
Since the US Dollar "floated" in 1971 and for the first 36 years or so of the existence of the modern $US trade weighted index (USDX), that index had an absolute floor of 80.00. It traded below the 80.00 level on only two or three occasions over that entire era. Just over two years ago, at the start of the "Global Financial Crisis", the USDX dipped below the 80.00 level - AND STAYED THERE FOR A WHOLE YEAR. It bounced back above the 80.00 level after September 2008 in the midst of a huge global "deleveraging" exercise. Individuals and businesses everywhere were frantically paying down debts. Since most of this debt was in US Dollars, there was a HUGE demand for US Dollars to pay it down with.
The USDX stayed above the 80.00 level until July this year. It then dipped back below it and has not been above 80.00 since. In mid September, as Gold was hitting new all time highs, the USDX slumped to 52 week lows.
More to the point, the US Dollar fell continually from early 2002 until late 2007 and the great "deleveraging" rally (see above). Over that same period, Gold has risen by nearly 300 percent. And throughout the period, the mantra never ceased. "The US has a strong Dollar policy". Even over the past year or so as the sole global reserve currency status of the US Dollar has come under greater and greater question, this "strong Dollar policy" statement has persisted.
But now, the G-7 doesn't want to talk about currencies and the G-20 isn't talking about currencies. Such talk is too close to the bone. Nobody wants to start a debate on the fundamental issue of the nature of the money which is being used to "stimulate" a comatose financial system at the cost of ever greater wreckage of what remains of the REAL global economy.
Exactly a month ago, the spot future Gold price jumped $US 19.00 to $US 997.00 Gold has spent the last month in a very tight trading range betweeen $US 990 and $US 1020. There is a limit to how long a trading range of this tightness can last. The global financial "powers that be" are hoping that if they don't broach the subject of money, they won't have to deal with the underlying flaw in their system. They won't, just as long as they can keep this tight range for Gold going. We don't think they are going to be able to maintain it much longer.
(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. Until this week, what had been traced out on this chart is the right shoulder of a gigantic "reverse" head and shoulders formation. But on September 16, spot future Gold CLOSED at $US 1020.20. That breaks decisively above the $US 1000 "double top" on this chart and revalidates the entire bull market - from the bottom. Last week, we have had the downturn on the chart. MAJOR support now lies at the uptrend line - presently at the two major uptrend lines.
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 (October 2, 2009) exchange rates, it would take a Gold price of $US 1356.30 for the Aussie Gold price to equal the all time high it set on February 20, 2009.