How many times have you read, heard, or seen a variation on this theme: "Gold has been in a BEAR MARKET for the past twenty years!"? If you can count them, you have better arithmetical skills than we have. On the surface, it's a plausible statement. For one day in early 1980, Gold was $US 850. Now, it is $US 264. That's a 24-karat bear market - right?
Actually, of course, even when Gold is "measured" in terms of $US, the statement is bunk. Since 1980, Gold has been in FOUR bear markets - and THREE bull markets. So have Gold stocks, by the way. But looking over the past decade, there has only been ONE bull market in Gold, and that one didn't last very long.
Almost all of that bull market took place in the six months between March and August 1993, when Gold climbed from $US 325 to $US 408. That bull market actually topped out in February 1996, when Gold hit $US 416. But for the entire period between January 1994 and January 1996, Gold was stuck in a $US 20 trading range. The actual bull market ended, for all intents and purposes, in August 1983. That's nearly eight years ago.
Now, of course, Gold is in a BEAR market, and has been in it ever since it hit that $US 416 level over five years ago, in February 1996. Not only is Gold in a bear market, but it has been languishing below $US 300 ever since November 1997.
In essence, with the exception of the five-month run up in 1993, Gold has been in a bear market ever since the last time it hit $US 500, and that was in December 1987. That's so long ago in the time horizons of modern investors that Gold might as well have been in a bear market "forever". After all, with the exception of the one day bear market of 1987 (which most have now forgotten) and the recent sojourn below 10000, the Dow has been in a bull market "forever" in the eyes of U.S. investors.
We have said this many times before on this page, but we'll say it again. Gold (and to a lesser extent Silver) and Gold stocks are the ONLY asset class which the U.S. Government has a vested interest in keeping the lid on. There is NO other asset - no currency, no stock, no bond, no real estate investment, no retirement fund, no derivative, that has seen its price purposefully pushed DOWN by government. All the asset classes which Americans invest in are dependent upon the health and well being of the U.S. Dollar. The health and well being of the U.S. Dollar is threatened by NO other asset class - EXCEPT GOLD.
A BULL market in Gold would be a potential catastrophe for the Dollar. So far this year, the Dollar has held up in the face of a horrendous U.S. stock market collapse (and recovery), FOUR 0.50% Fed rate cuts in less than four months, growing carnage on the U.S. corporate bond market, a recent blow out in longer-term Treasury debt yields ...the list goes on.
Now, the G7 and the IMF/World Bank are meeting and the central item of discussion will be the U.S. Dollar. Europe is refusing to cut its rates. South America, notably Argentina, is staring at potential debt default while it works towards changing its foreign reserve "mix" away from Dollars and towards Euros. Large parts of Asia are looking remarkably similar to the way they did in the lead up to the Asian Crisis of the late 1990s.
None of these situations are new. The only thing that is new is that this time, it is THE U.S. ITSELF that is facing an economic downturn. Even the IMF has acknowledged this fact. In all past meetings of global Central Bankers and Financial Officials, the U.S. has dealt from a position of perceived economic strength. NOT THIS TIME.
The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
A "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP.
The chart of $US Gold is above. Here are the charts of Gold in the other currencies we cover.
Gold in Yen
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
A little over a year ago, the Nasdaq was a "bubble". Now, the Dollar is a "bubble". ALL BUBBLES BURST.
(Gold This Week - March 30)
As you probably know, U.S. GDP for the first quarter of the year has DOUBLED expectations, coming in at 2.0%. Four rate cuts have managed to re-ignite U.S. consumer spending, and government spending is up as well. Both are based on BORROWING, and both are included in the GDP calculation. The U.S. still expects to succeed where Japan failed. They expect to re-ignite an economic boom based on unsustainable levels of lending and borrowing through the simple expedient of lowering interest rates. With the latest GDP figure, and with the continuing recovery on U.S. stock markets, most analysts say that it will be business as usual - markets going up and the economy "growing" again - by the second half of this year.
"In the current issue of The Privateer (#422 - published on April 15), we analyse in depth the refusal of the European Central Bank (ECB) to go along with the Fed's rate cut regime. In light of the Fed's move on April 18 (three days AFTER the current Privateer was delivered), this analysis takes on even greater import. If the ECB doesn't cut - SOON - the pressure on the Dollar will become intolerable. And as that (downside) pressure on the Dollar increases, the UPSIDE pressure on Gold in $US terms will also increase. At some point, it will have to break."
(Gold This Week - April 20)
The ECB is STILL refusing to go along with the Fed, despite the enormous pressure they are under from OUTSIDE Europe to cut rates. It is going to be very difficult to maintain the facade of global agreement during the G7/IMF/World Bank meetings over the coming week. And any slip in this facade will be the trigger that Gold needs to start going up - in earnest.
We have been very cautious in these commentaries about raising any hopes about an imminent Gold price rise of any magnitude. We know the IMMENSE vested interest, not only in the U.S., on holding the price DOWN. But the world has now reached the point where it cannot absorb any more U.S. Dollars, while the U.S. has reached the point where it is pumping new Dollars out as fast as it can merely in order to stand still.
There is definitely air starting to seep into the Gold "Elbbub". The potential for a spurt in the $US Gold price is higher than it has been at any time since the announcement of the "Washington Agreement" in late 1999. And because this time it is the U.S. itself that is facing an economic slowdown, we think that this time, any Gold price spike will be sustainable.
