Well well. For two days over this past week, that's just exactly what we had. On October 13, the spot future closing Gold price hit a new all time high of $US 1065.00. The next day, the Dow closed at 10015 - its first close above the 10000 level in just over a year. When the Dow was last above 10000 - and falling fast towards the lows it set last March, Gold was closing at or about its old January 1980 highs around the $US 840-860 area.
Here's the problem, for US stock market investors. The first time that the Dow hit the 10000 level was not too far off eleven years ago on March 29, 1999. Back then, spot future Gold was trading at $US 280. On October 14, 2009, investors who bought into Dow stocks in March 1999 were just about (not quite) even in nominal terms. The same day, investors who had bought Gold with US Dollars on March 29, 1999 were up by just over 280 percent.
That is an interesting fact, but here's a much more interesting conjecture. How much money has the US government and banking system created out of thin air in a direct or indirect attempt to support US paper "asset" merkets (including stock markets) since March 1999? The number is in the multiple $US TRILLIONS. And how much effort or money have they expended to support and sustain Gold? That's easy, precisely $US 0.00.
There are a number of very good reasons for the seemingly inexorable fall of the US Dollar. This is certainly one of them, of not one that has received any ink in the media. There is also a lot of speculation about Gold at $US 1000 plus, most of it wondering how long Gold can retain these lofty heights. Most of the speculation revolves around the conviction that once the US Dollar stops falling and starts to rise, Gold is done for.
We do not think so, nor have we thought so over the past decade plus. Gold is not rising despite the ongoing efforts to keep it reined in, it is rising BECAUSE OF those efforts. The latest evidence of the efforts, especially in the US, to preserve, protect and defend the status of the paper money system is the Dow regaining the 10000 level this week. The entire rally from the March lows has been, in essence, government fuelled. Everything from the stimulus money to the "TARP" money to the Fed's doubling of their balance sheet has been funnelled into the money centre banks and - from there - in to the asset markets. Including the stock markets, of course.
To assert that the 50 percent plus gains on the Dow since March are a reflection of a renewed robustness in the REAL US economy is laughable. To assert that Gold's breakthrough over the past month is a direct reflection of the REAL US economy is to be laughed at - especially in the US financial media. Yet that is precisely what it is. PHYSICAL Gold demand has exceeded newly mined supply since long before the Dow first hit the 10000 level in early 1999. It has ramped up to an even higher degree since the onset of the GFC and has shown no signs of fading over the past six months, despite the recovery of US and world stock markets and all the talk of "green shoots" and economic recovery.
As this decade comes to a close, it brings to an end a "lost decade" for the US economy. One measure is the static nature of the stock markets versus the quadrupling of the $US Gold price over that period. And this is over a decade unprecedented in history in the efforts which have been made to prolong the debt binge which is what allows the paper based monetary system to continue to function.
So Gold has made it to and above the $US 1000 level, something like 40 percent of its level in inflation adjusted terms from where it was 30 years ago. The Dow has made it back to 10000 - nominally equal with its level of early 1999 and more than ten times its nominal level of 30 years ago - or about four times the level in government-approved "inflation adjusted" terms.
And still, the debate on the NATURE of the money has yet to begin. Until it does, Gold has a LOT of catching up still to do.
(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. Late in September, had the downturn on the chart. And last week Gold burst above its September 16 high to put the final re-validation on the entire $US bull market.
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, even though it broke above $US 1050 this week, 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 16, 2009) exchange rates, it would take a Gold price of $US 1441.30 for the Aussie Gold price to equal the all time high it set on February 20, 2009.