In the discussion which follows, all Gold "closing prices" are SPOT FUTURE CLOSING PRICES.
Gold in 2001:
Gold in 2002:
Gold in 2003:
Gold in 2004 - so far:
Looking at the figures above, you can see that the similarities in Gold trading over the past three years - 2002-03-04 - are striking. In 2002 and 2003, Gold made significant highs early in the year and did not take out those highs until late in the year - December in 2002 and November in 2003. Also, in both 2002 and 2003 - a very significant portion of Gold's rise for the year took place in the last two months of the year, after Gold had taken out highs set many months earlier.
On October 8, 2004, spot future Gold closed up $US 5.10 at $US 423.10. This was Gold's highest close in 2004 since it set its 2004 high of $US 427.80 way back on April 1 - more than six months ago. So far, the only difference this year from what happened in 2003 and 2002 is that Gold has not yet taken out highs set earlier in the year. If (when?) it does, then precedent set over the past two years indicates a big upward acceleration of the $US Gold price lasting (at least) until the end of the year.
As we pointed out in our commentary last week, if Gold ends 2004 "in the black", it will be the first four consecutive "up" years (2001-02-03-04) for $US Gold since 1971-72-73-74 - the first four years since Gold was finally and completely severed from the $US.
That first consecutive four year Gold upmove took Gold from $US 35.00 at the beginning of 1971 to $US 195.00 at the end of 1974. So far, this Gold upmove has taken Gold from $US 273.60 at the beginning of 2001 to $US 423.10 as of October 8, 2004. The Gold "boom" of the early 70s was much bigger than the Gold bull of the early 21st century has been so far, but there is good reason for this. In 1971, Gold came to the end of a 38 period during which its "price" had been capped at $US 35.00 per ounce. When the "cap" was removed, the pressures built up over the previous 38 years kicked in, and Gold took off.
The "pressure" was built up by monetary inflation. In the 38 years between 1934, the year that the $US 35 Gold "fix" was put in, and 1971, US Treasury debt increased from $US 27 Billion to $US 424 Billion. That's a rise of 1470%. In the 33 years between 1971 and the present, Treasury debt has grown from $US 424 Billion to $US 7,420 Billion. That's a rise of 1650%.
Compare this rise in Treasury debt to the amount of Gold held by the Treasury. In 1934, this Gold holding was reported to be 194.3 million ounces. As of the end of August 2004, the Treasury Gold holding is reported to be 261.5 million ounces. In 1934, 194.3 million ounces of Gold propped up a Treasury debt of $US 27 Billion. Today, there are individuals in the US (Bill Gates and Warren Buffett to name two) who are worth more than that. In 2004, 261.5 million ounces of Gold props up a Treasury debt of 7,420 Billion.
We know the changes in magnitude are grotesque. No less grotesque is the fact that since this writer was born (in December 1949), the "currency component" (printed cash") of the US M1 money measure has grown from $US 25.5 Billion to $US 686.3 Billion. Add to that the fact that the Treasury held almost 700 million ounces of Gold at the end of 1949 and claim to hold not much more than one-third of that - 261.5 million ounces - 55 years later in 2004. You can see that there isn't much about the "modern" financial system which is not grotesque.
But the real absurdities of the modern system began with the divorcing of the US Dollar and Gold in 1971. Now (as outlined in the current issue of The Privateer - the early October issue #511 published on October 3) - the strains are becoming overwhelming.
There are now a little more than three weeks left before the US elections. As this is being written, the dulcet tones of Mr Bush and Mr Kerry are playing in the background as they participate in the second of three Presidential "debates". The financial world is attempting the amazing feat of a collective sticking of heads in the sand, unwilling to look closely at what is going on right now and scared to death of what the "future" - which starts on November 3 - will bring.
As far as the "debate" goes, Mr Kerry apparently has a "plan". Remember a song a few years ago which had a line which went like this: "I've got another plan, this time it'll work!"? Mr Bush is letting us know once more that money is no object when one is trying to "protect" America and bring "freedom" to the world.
This is the kind of thing which gives "drivel" a bad name. But astonishing numbers of people, not least those on Wall Street and in the financial system, are doing their best to make us think they are taking it seriously. What choice do they have, other than to resign their jobs and run screaming out of the buildings?
If you think we are exaggerating, here are a couple of quotes from Treasurer Snow uttered at a meeting with businessmen in Ohio:
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6455361
"The United States really is a fiscally responsible place. If we weren't, we wouldn't have the lowest interest rates in over 40 years."
"It's" (Treasury debt paper) "the best paper in the world. It wouldn't be the best paper in the world if we didn't manage the debt and deficit with a lot of attention."
As an old friend of ours observed recently, the variation on the old line from Butch Cassidy - "Who ARE These Guys?? - doesn't do modern financial officials and spokesmouths justice anymore.
You know about the debts. You know about the deficits. You know that both candidates think that the US can continue with "business as usual" as soon as they have gotten through the tedious business of deciding which of them gets to sit in the Oval Office. You know - or you should know - that neither candidate is bound by his party's platform. You know about the utter dependence of the US on foreign capital. Knowing all this, you also know that a huge "shear" is coming between the financial world as it is and the financial world that those who run the financial world are trying to portray.
Will 2004 be a replay for Gold of 2002 and 2003? We don't know. What we do know is that everything is set up for it. If it does happen and it follows the events of 2002 and 2003 it will happen in November and December. If the present 'hold' on most financial markets (oil being a sobering exception) does not stay in place until the election, it could happen at any time.