"On Tuesday, February 19, after a long weekend in the U.S., Comex Gold trading reopened. Shortly after it opened, and before the London Gold market ended trading for the day, a portion of a statement made by Bundesbank head and ECB (European Central Bank) board member Ernst Welteke which was scheduled for broadcast the following day on U.S. TV was "leaked" to the floor."
(Gold Last Week - February 22)
On the day before Mr Welteke was quoted, spot future Gold had closed at $US 298.40. Two weeks later, on March 1, spot future Gold closed at - $US 298.40. That's how long the latest threat of Central Bank Gold sales has lasted this time.
Of course, it could be argued that if Mr Welteke had NOT made his statement, Gold would now be well ABOVE $US 300. There's no way of knowing that. All we DO know is that Gold remains just below the $US 300 level, and a nebulous threat by the Bundesbank to sell Gold has, amongst other things, held it there for the past two weeks.
"Amongst other things" (see above)? There have been two other main factors in Gold's quiescence. The first is the ever-building tidal wave of economic cheerleading from both the U.S. Administration and from Wall Street. Everyone who has anything to do with either of these august assemblages is now absolutely CERTAIN that the U.S. recession is over. Many now happily claim that it never happened in the first place. And all are SURE that recovery is underway.
How sure? well, the U.S. government is predicting 2002 economic "growth" of up to 3.0%. And on Wall Street, the Dow has finally broken out of its post 9/11 malaise with a 263 point rise on March 1. This rise boosted the Dow to its highest level since last August. It came the day after U.S. fourth quarter (2001) GDP growth was "revised" from +0.2% to +1.4%. And on the day itself, news of increased consumer spending and actual growth in the U.S. manufacturing sector hit the "floor".
No one noticed that the average U.S. "consumer" has combined debt and mortgage payments that "consume" 105% of his or her monthly disposable income. No one noticed that U.S. government spending for the fourth quarter of 2001 was revised upwards to an increase of 10.1%. The last time that government spending grew that much in three months was back in 1978. No one considered that the "growth" in the U.S. manufacturing sector might have something to do with this explosion of DEFICIT government spending.
What everyone noticed was that Wall Street said that the numbers spelled recovery. "Ah ha - there's STILL money to be made on the stock market!. This "confidence" is clearly not universal. A lot of U.S. corporate chiefs are not backwards in saying that their ACTUAL earnings are abysmal, no matter what their "pro forma" earnings may be. There have even been a few curmudgeons who have pointed out that one cannot SPEND "pro forma" earnings, although one can clearly borrow against them.
So, as long as the "real" U.S. investment markets are holding out such "promise", there is no pressing urge seen by most to diversify, certainly not into areas such as precious metals. Consider the present situation and it is hard not to be impressed by Gold's resilience. In times past during Gold's long sojourn below $US 300, a resurgent DOW has not been compatible with Gold retaining its strength.
The other major factor which has held Gold in place is the simple conviction, held even by most "Gold bugs", that the financial powers that be will NEVER lose their grip on the precious metal. This is well reflected by a Reuters quote commenting on Gold trading on February 19, the day that the Welteke quote was tossed onto the Comex trading floor:
"The whole" ($US 5.20 fall) "move was on the Bundesbank story. ...Britain will conduct the last of its planned 20 tonne Gold auctions in March, and the market has been waiting to see which nation will step in to take up the slack."
Britain will indeed hold the LAST of its Gold auctions "in March". On March 5, in fact, this coming Tuesday. The latest rabbit pulled out of the hat was Mr Welteke's comments. That stalled Gold at $US 300. Most are sure that there is an inexhaustible supply of rabbits waiting in that same hat, and that as soon as the "settlement price" on the last BoE auction is known, another will be duly hauled into the light of day.
In reality (study history), there is nothing so dangerous to an individual's financial (and sometimes actual) health than to assume that government is omnipotent. In the case of Gold, the thinking is that once the "Brits" stop selling, someone else will step in. And if that doesn't work, they will just do something else. But they will NEVER fail.
That was the assumption back in 1978-early 1979 when the IMF/U.S. Treasury was auctioning Gold. Most assumed that this (or something like it) would be successful in holding Gold down forever. That is one of the main reasons that most people didn't get aboard the Gold bull in 1978-early 1979, they got aboard in late 1979-early 1980.
Gold didn't break through the ($US 200) high it had set at the end of 1974 until early 1979. By the time the "Gold rush" started, Gold had doubled that level to $US 400. By the time the "Gold rush" got going in earnest, Gold had doubled again to $US 800.
It is CERTAIN that the present long-term efforts to hold the Gold price down will ultimately fail. It is NOT certain WHEN that will happen. Because the efforts have been going on for so long, most people who notice Gold at all assume that they are in the natural order of things and will be successful in perpetuity. THEY WILL NOT.
The next huge hurdle which the sub $US 300 Gold brigade have to overcome is not the end of BoE Gold auctions, it is the ABSOLUTE necessity for the U.S. Congress to raise the U.S. Treasury's debt ceiling - THIS MONTH. The debt ceiling has not been touched since August 1997. The U.S. government has spent almost all the time since then boasting about paying off ALL U.S. federal government debt - just give them time.
Despite the much vaunted and equally imaginary government "surpluses", U.S. Treasury debt has increased by almost $US 600 Billion in the 4 1/2 years since August 1997. Now, the Treasury needs another $US 750 Billion "leeway". The announcement of a debt ceiling increase, when it comes, has the potential to be a financial bombshell. It also has the potential to kick start a Gold BULL market.
Note the word POTENTIAL. Whether the announcement DOES kick start Gold depends on how many, both inside and outside the U.S., recognise its significance. Its significance should be obvious. The world's most indebted nation has decided to give itself permission to increase that debt yet again, after crowing for years that it was going to pay it ALL off. The unpleasant truth is that the debt is NEVER going to be "paid off".
Any spot future Gold close at or ABOVE $US 300 before the BoE Auction on March 5 would be VERY bullish. We don't know when the announcement of the debt ceiling increase will be made. We do know that it is going to be VERY hard to keep on keeping Gold down once it is.
The "Gold controllers" are running out of "encores", just as they did back in the late 1970s. Back then, they finally lured everyone back into paper money with 20% plus interest rates. This time, that is utterly politically impossible. The only thing they can do is to maintain the facade of "economic recovery" as long as possible, and hope that no one notices the massive acceleration of debt that is being piled up to maintain it.