On November 26, 1997, the spot future price of Gold fell $US 3.60 to close at $US 296.90. This was the first spot future Gold close BELOW the $US 300.00 level in nearly 13 years - since March 14, 1985. Indeed, between August 8, 1979 and November 26, 1997, the spot future Gold price had only closed below the $US 300.00 level for one brief period in early 1985:
That's it - one brief "hiatus" of three weeks over a period of more than seventeen YEARS. And please consider this. Gold's "dip" below $US 300 in February/March 1985 was the PEAK of a multi-year run up by the U.S. Dollar. At the end of February 1985, the Dollar was "worth" 263 Yen and 3.44 D-Marks. Today, the Dollar is "worth" just under 131 Yen and 1.117 Euros - or 2.185 in soon to be defunct D-Marks.
Spot future Gold closed above the $US 300 level for the first time ever on July 5, 1979. Gold's last spot future close below $US 300 in the 1970s was $US 294.00 on August 7, 1979. Between August 8, 1979 and November 25, 1997, spot future Gold only ever closed below $US 300 during a three week period at the peak of a $US boom in Feb/March 1985.
And after November 1997? Well, spot future Gold repeatedly traded back above $US 300 from early April to early May 1998, but could never sustain the level for long. After that, Gold remained below $US 300 until the "Washington Agreement" spike which carried Gold as high as $US 324 on October 5, 1999. Gold also spiked above $US 300 in February 2000, peaking at $US 316.20 on February 10. But spot future Gold had fallen back below $US 300 by February 24, 2000. From that day to this, a period of almost two years, spot future Gold has not closed above $US 300
Is Gold "undervalued" in $US terms at present levels? If you doubt it, consider a few points:
As we enter 2002, Gold remains dormant while the strains on the global financial system become ever more visible. In 1997/98, when Gold began its long sojourn under the $US 300 level, there was a "crisis" which spread from South East Asia to envelop the world. At that time, the IMF and then the U.S. Fed itself were seen to be riding to the rescue with economic "austerity plans", $US multi-Billion loans, and Fed stimulus in the form of lower rates and "liquidy creation". Now, Argentina, a nation which owes $US 132 Billion, has officially DEFAULTED on its sovereign debt after having gone through three governments in two weeks. Neither the IMF nor the Fed is anywhere to be seen. And the whole world is pretending that the Argentinian default will not affect "them".
On top of that, as we enter 2002, we have a new contender for global "reserve currency" status in the Euro, which is now a circulating CASH currency.
The potential "triggers" for the Gold price are numerous indeed, there are too many to document here. But consider just one potential "trigger". Less than a month ago, the U.S. Treasury submitted a formal request to the U.S. Congress that the "debt ceiling" be increased by $US 750 Billion from its present level of $US 5.95 TRILLION to $US 6.70 TRILLION. At the time of the request, the Treasury said that this increase was "urgent" and recommended that it take place before the end of 2001. It has not yet taken place.
In this context, it is important to note that the Treasury debt ceiling was raised to its present level of $US 5.95 TRILLION on August 5, 1997. This was shortly after the onset of the "Asian financial crisis" and shortly before Gold began its long sojourn below $US 300.
As you probably know, the U.S. Government has been claiming annual SURPLUSES ever since fiscal 1998 - which began on October 1, 1997, less than two months after the last debt ceiling raise. Despite these supposed surpluses, the funded debt of the U.S. Treasury has officially increased every year. Now, it has been officially admitted that there will be no more annual "surpluses" in the foreseeable future, hence the urgent request for a $US 750 Billion increase in the debt ceiling. When the Treasury first made their request less than a month ago, they stated that they expected the current debt ceiling to be hit - at the latest - in March 2002.
Now, remember, the Euro is now a fully-established CASH continental currency which has all the attributes required to function as a global RESERVE currency. In this situation, the U.S. Treasury, and the U.S. Congress, is preparing to INCREASE the U.S. debt ceiling (by $US 750 Billion or 12.6%) for the first time in 4 1/2 years. The Congress is also preparing to go back into deficit, after having trumpeted budget "surpluses" ever since 1998. It should be crystal clear that the potential shock to the global financial system is IMMENSE.
As already stated, Gold began its sojourn UNDER the $US 300 level shortly after the last U.S. debt ceiling increase was announced in August 1997. Amongst the many other potential "triggers" for a rapid and SUSTAINED Gold price rise back above the $US 300 level, an announcement of another U.S. debt ceiling rise ranks very high.
And the announcement will have to come "soon". On December 31, 2001, the U.S. Treasury listed its current debt at $US 5.943 TRILLION) (debt ceiling $US 5.950 TRILLION). By January 3, 2001, this official figure was conveniently down to $US 5.919 TRILLION. But the countdown is on. An official raising of the U.S. debt ceiling, when it occurs, will be the first official admission of a planned INCREASE in U.S. debt since 1997. Two years ago, the official line was that the U.S. was well on the way to ELIMINATING its debt. One year ago, the present debt ceiling was officially predicted to be enough to meet U.S. needs until 2009.
As history shows, the capacity for human beings to hide their heads in the sand is very large, but it is FINITE. 2002 will define the limits of this capacity. The sub $US 300 Gold price, which has been the only constant of the global financial system over the last four years plus, will NOT survive this year.
May we all have a very HAPPY NEW YEAR - stay tuned.