"The $US index has posted new highs regularly ever since its present bull market began in early 1995. To perpetuate its bull market, it must do so again. That means a high this time ABOVE the 121.21 level it set seven months ago."
"If it can do it, Gold's time has probably not yet come. If it can not, if the $US index fails at its July 2001 high, then Gold is set up to finally break out of its sub $US 300 prison."
(Gold Last Week)
On January 31, the $US index hit its high so far this year, closing up 0.54 points at 120.59. On the same day, spot future Gold closed at $US $US 282.10
The $US index has NOT gone on to surpass its 2001 highs, not yet. Instead, it has been gradually falling back. The $US index closed on February 8 at 119.20 - that's 1.39 points or 1.15% below its January 31 level.
Gold closed on February 8 at $US 303.50. That's $US 21.40 or 7.59% above its level on January 31. As we have been pointing out ever since the beginning of the year, Gold has spent most of the year so far rising slowly with a fast rising U.S. Dollar. The moment the U.S. Dollar stopped rising, Gold rose faster. And now that the U.S. Dollar is falling - albeit slowly to this point - Gold has soared.
None of this is any kind of a "coincidence". None of it is in any way hard to understand. None of it could not have been foreseen. The only thing that would prevent someone from taking note of these circumstances is the conviction - reasoned or otherwise - that governments and the individuals who direct those governments are OMNIPOTENT. That anything they deem necessary must come true, regardless of economic law or reality. We are here to tell you that it AIN'T SO.
Over the past five years or so, since the "Asian Crisis" broke out in 1997, most people in the world have learned the hard way that their governments, far from being "omnipotent" cannot be trusted. What can be called the global financial "periphery" has suffered through an unending series of financial crises over that period. All of South East Asia and the Asian Pacific rim, all of Latin America, all the former Soviet Union and the East Bloc nations have shared similar experiences.
There have been variations in severity, but the common feature of all these financial crises has been chaos in the banking system(s) and a plummeting currency. The latest and potentially most severe of all these crises - so far - is presently taking place in Argentina.
Argentinians have seen their currency plummet, but worse, they are in a situation where they DO NOT HAVE ACCESS to their money at all. The Argentinian government has admitted in almost so many words that to allow Argentinians to take their money out of the banks would instantly collapse the Argentinian banking system beyond the power of recovery. This situation has been steadily worsening since last December, and shows NO signs of being resolved.
What the Argentinian government has NOT revealed is that the banking system of ANY nation (repeat - ANY nation) would collapse if what the Argentinian government fears were to actually happen. Argentina is not unique, it is merely "closer to the edge" than are most other nations - so far.
Last week, we reported on the musings of the "world economic leaders" who had gathered in New York City:
"They are scratching their heads over why anyone would buy Gold while the Dollar is STRONG. They have made the profound assertion that a rising Gold price "almost always" indicates depreciating currencies. They also assert that Gold's rise shows that investors are losing confidence in the monetary policies of Japan, Europe, and the U.S..
(Gold Last Week)
You will note that when we dealt with Argentina, we stated that the crisis there was the worst of all - "so far". There is a MUCH bigger one brewing - in JAPAN. At the end of March, the Japanese people lose "deposit insurance" on time deposits over 10 million Yen (about $US 75000). We have more on this in the upcoming issue of The Privateer (published on February 10). The Japanese people are very concerned about this. What are they doing about it? THEY ARE BUYING GOLD - in record quantities.
The Europeans are - happily - embracing their new currency, the Euro. They know that Gold is part of the OFFICIAL RESERVES of the European Central Bank. They are also becoming more and more uneasy over the latest stated policies of the U.S. government. Most of the rest of the world shares, to a greater or lesser extent, this unease. The unease has two targets. The first is the HUGE escalation in the "war against Terrorism" announced by Mr Bush in his State of the Union speech. The second is the gigantic increase in the cost of U.S. government policies - ostensibly to prosecute the "war against Terrorism".
Never forget, ever since U.S. stock markets took off in early 1995 - and even before that - ever since the final demise of the Soviet Union in 1991 - the one TRUE "omnipotent government" in the world has been almost universally seen to be the U.S. government. The U.S. government, and/or the Treasury, and/or the Fed, could fix ANYTHING! And they did fix everything, until the wheels started to fall off at the end of the previous century.
Now, the U.S. government has decided to do everything at once. They are going to "eradicate terrorism", a vice which has plagued the world for centuries. They are going to reignite world economic growth in a world which is more deeply indebted than it has ever been. They are going to EXPAND a military presence which already far exceeds the "stretch" of any other empire in history. And if they "have to", they are going to do it all by themselves.
In all of these endeavors, according to Mr Bush and his advisors, COST IS NO OBJECT! Here is the cult of "omnipotent government" in all its "glory". Here is a brand new avalanche of "deficit spending" in the U.S.. And here lies the reason why Gold has mysteriously come to life.
For good and abundant reasons, backed by recent very painful and equally real experiences, most of the world does not trust government - ANY government. Americans too, are beginning to have second thoughts. In December, usually the biggest month of the year, U.S. consumer borrowing CONTRACTED by $US 5.1 Billion from the previous month. This was the biggest monthly contraction since the Fed began to track the figure in 1943. Americans are at the end of their borrowing tether. Their government recognises no end to how much THEY can borrow.
Is there any wonder that Gold has suddenly broken loose?
This weekend, the Central Bankers of the G-7 nations are meeting in Ottawa, Canada. Do you have any doubt that GOLD will be on the agenda, quite likely at the TOP of the agenda? This meeting will pit three (the U.S., Canada, Britain) against three (Germany, France, Italy), with one "wallflower" (Japan). If the U.S. government is going to accelerate their spending to the extent they plan to WITHOUT the Dollar expiring, they need FULL co-operation from their G-7 "partners". They will find out at this meeting if it will be forthcoming.
If it is, Gold may well dip back below $US 300. If it is NOT, Gold is set to rise MUCH higher. The price action on Monday, February 11 will be the first indicator. But no matter what happens in the short term, the delusions of omnipotence of the U.S. government have GUARANTEED the demise of their currency and their economy. Unless they radically change their policies, it's just a matter of time. Gold's sudden spurt is the clearest possible indicator that their time is running out. Stay tuned.