Five weeks ago, on Friday, July 19, spot future Gold all of a sudden jumped $US 6.80 to $US 323.90. That put Gold only $US 3.90 below its 2002 high close of $US 327.80 set on June 4. There was no particular reason for this jump in the Gold price, except for the fact that the $US was plummeting and U.S. stock markets were in something uncomfortably resembling free fall.
The next week, July 22 - 26, was the week of the great Gold "raid" with the spot future price slumping $US 20.60 - all the way from $US 323.90 to $US 303.30. Over the same week, U.S. stock markets hit their 2002 lows (in intraday trading on July 24) and then began the rally which is still continuing. Over that same week too, the $US index hit its 2002 low, and bounced.
By the middle of August, Gold had got more than half of its late July losses back, despite the fact that the U.S. stock markets have been rallying for a month. In fact, Gold spent the second two weeks in August trading between $US 310 and just below $US 320. Then came Monday, August 19 and another Gold "raid" - Gold lost $US 7.70 on the day - pushed the metal back towards $US 300 again. Each time Gold falters, the same culprits - "U.S. funds and banks" - are routinely cited as the instigators.
Here's how the Comex Gold trading session of August 19 was reported:
"New York, Aug. 19 (OsterDowJones) - Comex Dec gold futures settled $7.70 per ounce, or 2.5%, lower Monday at $307.70 after a sturdy U.S. dollar against other currencies and a solid display by U.S. equity markets spurred fund and bank selling through the session."
No big deal. Just another day at the office for the Comex Gold traders. For the record, The $US Index was up 0.83 points on August 19 and the Dow gained 212. This could certainly be described as a "solid display". But on August 6, for example, U.S. markets put on an even more "solid Display with the $US index soaring 1.40 points and the Dow adding 231. The next day, August 7, spot future Gold gained $US 8.80. Where was the "fund and bank selling" on that day?
For the summer "doldrums", the last month has been pretty action packed. A month ago, U.S. stock markets were in free fall. Then they rebounded as "band aids" were stuck over most of the worst holes in the leaking system. The Congress announced a new bill to bring the U.S. "corporate cowboys" to justice. Mr Bush decided he had better notice that the U.S. had an "economy" and announced an August 13 "forum" to talk about it. Wall Street stepped up the rumours about a possible Fed rate CUT on August 13. The IMF turned on the proverbial dime and started throwing money at Uruguay and Brazil. The Fed met and did nothing, but let it be known that they would cut if they had to. CEOs and CFOs across the U.S. started actually signing their books. The stock market rallied. The Dollar rallied. Treasury bond yields plummeted, with the two year paper falling below 2.0% on August 13.
A rally there had to be, the plummeting markets in mid/late July were threatening to derail the Bush Administration's focus on - you should pardon the expression - "foreign affairs". A war is a tried and true distraction when your economy is coming apart at the seams. But it is hard to be seen when the people in your nation can SEE it coming apart at the seams. The seams had to be re-stitched, and they have been, so far.
Even with all this good tailoring though (the markets have posted weekly gains for five straight weeks), opposition to the Iraq war plans have broken out in high places over the past two weeks, and the American people are cooling on the idea fast. When the question: "Are you in favor of going to war against Iraq" was asked over the week of August 12-16 - 61% of respondents said yes. This week - August 19-23 - the "yes vote" has dropped to 53%.
And through all this, Gold is as quiet as a mouse. For two weeks, it traded in a tightly bound range between $US 310-315. Then on August 19, Gold dropped $US 7.70, and few if any noticed. Ever since then, it has been trading between $US 306-308.
How long can this be kept up? There's no way of knowing. The one thing that is certain is that until the Bush Administration finally decides to go or not to go re Iraq, it will have to be kept up.
We are now one trading week from the long Labor Day weekend. Gold has come through its traditional "doldrums" period quite well so far. The U.S. stock markets have indeed staged a summer rally. The only problem is that they staged a pretty good imitation of a summer crash (in July) before embarking on that rally. And as a cursory glance at any Dow chart will illustrate, U.S. stock markets have suffered BAD corrections in the August-October period in every year back to 1997 - not to mention the ones in 1929 and 1987.
For Gold, the last time that it had a genuine bull market was in 1993. Back then, Gold got "king hit" in early August, bottomed in mid September, climbed from there until the end of the year, after which it remained in a tight trading range right up until February 1996. That was when the U.S. markets were embarking on their great BULL - when the Gold bull began in March 1993, the Dow stood at about 3400.
One HUGE stock market boom - and bust - later, we stand in a similar position. Gold was stopped dead in June, smashed downstairs in late July, and has been "bubbling under" since then. $US 300 is the key, of course. If there is to be another concerted attempt to get Gold below that level, we expect it to come in the next week or two. Stay tuned.