A number of events this week, a couple of them interesting but most quite predictable. First, the "climate change" UN conference in Copenhagen deteriorated into the predictable farce. There were 193 nations represented at the summit along with almost 120 presidents, vice presidents, prime ministers, etc all milling around amongst the 8000 delegates who did get in. Then there were thousands more delegates who didn't get in, plus the obligatory protestors.
The leaders of the nations which matter didn't show up at Copenhagen until the deadlock was entrenched. As everyone knew long before the "conference" started, there were only two nations which mattered - the US and China - and there was no chance of an agreement between them. Nor did one eventuate. The public whipping boy was China who balked at the suggestion that their carbon emissions be "audited" by an outside agency. The Chinese saw this, as they always said they would, as a compromise of their sovereignty.
Meanwhile, Mr Obama spent the few hours he allotted to Copenhagen being ushered from one impromptu meeting to another - one more indication that what the US says on a global basis no longer goes.
The whole tenure of the conference was made very clear indeed by the Prime Minister of Ethiopia, Mr Zenawi, who was representing Africa. Mr Zenawi let it be known that Africa would "accept" $US 30 Billion as a short term "commitment" from the "developed" nations as a down payment on the $US 100 Billion to be paid by 2020. This was seen as a great breakthrough.
The one thing that the Copenhagen summit did accomplish was to flood the major news media with inanities at the expense of any real news that might otherwise have been reported. That was its major purpose as it is the entire debate's major purpose.
On December 16, the Fed met and dutifully left US official rates at 0.00-0.25% "for an extended period". US rates have already been at that level for an extended period. They were lowered to that point exactly a year ago on December 16, 2008. The minutes of the meeting did say that the Fed had detected further "strengthening" in the US economy, without giving any concrete information on precisely what had been detected. Never mind, the computer generated trading which makes up the vast majority of the volume on all major US and world paper markets had the "parameters" they required. The $US index continued to rise all week.
$US Gold had arrested its slide over the early part of this week and actually rose $US 13.20 on December 16, the day the FOMC announced its rate decision. That was a very short-lived bounce though, as the $US Gold price plunged almost $US 29.00 the very next day. The catalyst for this move was the same as had been the catalyst for Gold plunging from the $US 1218 high set earlier this month.
As reported in the current issue of The Privateer (Number 644 - published on December 13), Fitch downgraded its credit rating for Greece to BBB+ last week while the other ratings agencies downgraded their "outlooks" for Greece, Spain and Portugal. This had been instrumental in the big fall in the Gold price and the recovery of the US Dollar. Early this week, the Greek government announced spending cuts including a 10 percent cut in both social security payments and gerneral goverment operating expenses.
The Greek deficit as a percentage of GDP is currently slightly higher than the US and a bit lower than the UK. There have been no announcements from either of these nations as to any concrete plans to curtail deficit spending. Nor have there been any ratings or "outlook" dowgrades by any of the ratings agencies towards either of these nations, nor any talk about same.
No matter. On December 17, Standard and Poors completely ignored the announcement by the Greek government of two days earlier and followed Fitch in downtrading Greek sovereign debt to BBB+. The US Dollar rose and commodities in general and precious metals in particular fell, just as they had when Fitch did the original downgrade. As you know, the vast majority of "trading" on paper markets these days is done by computer program. All the computers needed to see was the debt downgrade. They did the rest.
Finally, the really interesting news item emerged this week as the official Treasury's "debt to the penny" temporarily exceeded the Treasury's current debt "limit" of $US 12.104 TRILLION. On December 17, the US House of Representatives - by a very narrow 218 to 214 margin - increased the Treasury's debt limit by $US 290 Billion to $US 12.394 TRILLION. This was done as an add on to a bill passing a $US 636 Billion defence authorisation and a $US 154 Billion economic aid package.
The original plan favoured by the Democratic leaders in the Congress was to increase the limit by between $US 1.8 and 1.9 TRILLION as an "attachment" to the defence bill. This would, so they hoped, have given the government time to get through the mid-term elections next November without having any more embarrassing debates about extending the Treasury's "credit card" in the meantime. In the event, an increase of this magnitude was deemed impossible. Even the $US 290 Billion compromise only just scraped through. Both Democrat and Republican Congressmen had threatened to vote down the entire bill if it had included a debt limit increase of the magnitude announced just last week.
The $US 290 Billion increase is "scheduled" to meet the borrowing needs of the US Treasury until February 11, 2010. That's just eight weeks from now. And even an increase of this very modest magnitude is not yet law. First it has to be passed in the Senate and signed into law by President Obama.
This compromise Treasury debt limit increase was passed on the same day as Standard and Poor downgraded Greece. It was NOT taken into account by the computer programs which oversee paper trading on the exchanges. There is nothing programmed into the computers which has anything to do with a possible debt problem or default by the 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. 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, only to see Gold burst above its September 16 high to put the final re-validation on the entire $US bull market in early October. The correction over the past two weeks, which has given up a bit more than half half the gains since then, does not change that fact.
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. It has remained above the $US 1000 level continually since the end of September and rose more than $US 200 almost straight up before the December 4 correction. Now, two weeks later, a bit more than half that rise has been given back.
Please not that while the $US Gold price fell this week, Gold priced in all three of the other currencies in the table rose.
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Gold priced in Japanese Yen has joined $US Gold in the plus column. After getting into the plus column as the $US Gold price peaked, the Euro Gold price has slipped back into the "red" week. The most "extreme" example remains the Aussie Dollar Gold price. at current (December 18, 2009) exchange rates, it would take a Gold price of $US 1393.65 for the Aussie Gold price to equal the all time high it set on February 20, 2009.