A year ago today, on July 29, 2004, the $US spot future Gold price closed at $US 387.00. That just happens to be its 52-week low, the spot future Gold price hasn't been lower than $US 387 since. On July 29, 2005, the $US spot future Gold price has closed at $US 429.90. That's a rise of 42.90 or 11.1% over the past year.
The last time that spot future Gold closed BELOW the $US 400 level was on September 9, 2004. The last time it closed below $US 410 was on September 27, 2004. The last time it closed below $US 420 was on February 10, 2005. It's been a slow grind.
However, given the fact that the $US index has risen more than 10% (80.60 to 89.23 on the $US index) so far this year, Gold has hung in there very well. The steady increase in the $US index this year has certainly had its effect on Gold denominated in other currencies. Six weeks ago, we reported that Gold had surged to all time highs in Euro terms. Two weeks after that, we reported that Gold had risen to levels which confirmed a new leg in its bull market in Euro terms, and had risen to levels last seen in 1991 in terms of the Japanese Yen.
Gold has retreated from those levels in Euro and Yen terms in the month to date, but it hasn't retreated very far. And now, a week after the announcement from China that they have ended their fixed "peg" to the US Dollar, Gold is rising again in US Dollar terms. It is also rising against a US Dollar which has yet to suffer any ill effects from the Chinese announcement on July 20. On July 20, the $US index closed at 89.20. On July 29, the $US index closed at 89.23, having hardly moved at all in the intervening week.
Right now, as they usually are at this time of year - almost midway between the US July 4 holiday and its Labor Day holiday on the first Monday in September (September 5 this year) - things are quiet. The signs are mounting up that they won't stay that way much longer.
Politically, the mire is deepening around the two main figures in the "war on terror", Mr Bush and the UK's Mr Blair. Mr Bush's "popularity ratings" continue to dive with the latest poll yielding the lowest figure of his Presidency - so far. The Bush Administration has just had its entire 2005-06 Defence budget (all $US 450-460 Billion of it) chucked into the "too hard" basket by the Republican majority in Congress. They will have to re-tackle it when they re-convene after their summer recess. And the scandal surrounding the exposure of Valerie Plaume as a CIA agent is steadily gathering momentum and snaring more and more Administration officials in it.
In the UK, Mr Blair recently claimed that anyone who thought there was a connection between the UK participation in the war and occupation of Iraq and the July 7 London bombings was a "fellow traveller of terrorism". On July 27, a Daily Mirror/GMTV poll was published which shows that EIGHTY-FIVE PERCENT of the British public make precisely that connection. Oh dear!
As we have repeatedly pointed out in The Privateer, there is more than one casualty of war. The first, of course, is truth. From that comes the second casualty, which is freedom. And the third casualty, deriving inexorably from the first two, is market prices, or more broadly market valuations.
It is incumbent upon any government which proclaims its ability to "run the country" that, should it declare war, its people must see themselves as deriving some benefit from the war. In the case of the Iraq war, the first "benefit" which the aggressors hoped to sell was the benefit of "security" from terrorist action. As witness the recent poll in the UK reported above, that one has fallen flatter than flat. The situation in the US is no different.
The other "benefit" which has been sold to the people of the nations which are waging the "war on terror" is a surge in valuations. In the year in which the war started - 2003 - this was seen in a spectacular recovery on western (especially US) stock markets. In the year and a half since 2003, it has been seen in even more spectacular increases in the valuations of residential real estate.
In the US, this skyrocketing real estate valuation increase is still going on. In the two major "allies" of the US, the UK and Australia, it has come to a screeching halt. In Australia, it has done more than that. Real estate valuations are now FALLING.
In all three nations, the ACTUAL economic and financial condition of the people has been deteriorating throughout and the pace of that deterioration is now becoming both obvious and potentially politically explosive. REAL jobs are dwindling. And with interest rates slowly increasing, the gigantic levels of debt held by the "consumers" in all three nations is fast catching up with their ability to service it.
The contempt for truth engaged in by all three of the major Iraq "allies" is now crystal clear to any adult citizen who cares to open his or her eyes. The erosion of Freedom is equally clear. In the US, Patriot II has been passed. In the UK, the police forces are operating on a "shoot to kill" (and ask questions later) policy in the aftermath of July 7. And in Australia, Prime Minister Howard, who was vehemently opposed to any introduction of a "national identity card" when the idea was mooted by his political opponents nearly a decade ago, is now coyly refusing to "rule out" the imposition of same.
What has not - YET - become so clear to Americans, Britishers, and Aussies is the contempt for the operation of the markets being shown by their political masters. This is the LAST vestige of political "legitimacy" being clung to by these political masters. As long as stock markets are not crumbling, interest rates are not soaring, currencies are not diving, and government bond yields are under control, the governments can still claim to be "successful" in their professed expertise in "running the country".
They will go to and are going to any and all lengths to preserve this legitimacy.
In the face of this desperate clinging to political legitimacy, it is striking that Gold has held up as well as it has. As the quagmire in Iraq deepens and as more and more Americans, Britishers, and Aussies grow closer and closer to DEMANDING a fundamental change in government policy as the only legitimate way to deter terrorism, the desperation of the political establishment in all three nations will deepen. If there was any way that these establishments could have forced Gold down - preferably back down below the dangerous (to them) $US 400 level - they would have used it by now.
The problem, for the political establishments, is simple. The chasm between what is REALLY happening and what they want their subjects to (literally) believe is happening has become to big to bridge. The graver problem is that they are now realising it.
Gold, as it has done throughout the political attempt at mass public delusion which began with 9/11, continues to shine as a means of capital preservation. This is true everywhere, but nowhere more so than at the epicentre of the political machinations, the US and its Bush Administration. Slowly but surely, the grip is being lost. The only way to continue it now is to escalate and widen the military adventure, and Iran is the prime candidate.
The grave risk here is a public backlash of similar dimensions to what happened when the Nixon Administration widened the Vietnam war to Cambodia. Seeing no other way out, that Administration decided to take the risk. The rest is history.
So is the crumbling of markets which took place in the wake of that decision. An equivalent decision today, an escalation in to Iran, would inexorably breed similar consequences. A decision to pull back from such a brink would inexorably expose the lies which have been circulated to this point to the cold light of day.
Either way, the three casualties of war, truth, freedom, and true market valuations, are close to snapping back with a vengeance. To the extent they do, the one economic good whose valuation has been held DOWN more than all others - GOLD - will snap back and UP proportionally. It's been a quiet year, so far. Don't count on it lasting too much longer.