On July 24, less than two weeks ago, the spot future USDX ($US Index) fell 0.29 points to close at 79.93. This was its first close below the 80.00 level in more than a decade. The USDX has been in existence since the dawn of the "floating exchange rate" era in 1973. Since then, it has only closed below the 80.00 level on a handful of days in the early 1990s. It has never closed below 79.00. That is why The Privateer has called the 80.00 level on the USDX - "The most important 'support point' in the world".
As you probably know, on Friday, August 3, the USDX swooned again. This time the spot future USDX fell 0.54 points to close at 80.06, only 13 basis points above that July 24 close and once again on the verge of falling below that vital 80.00 level.
The day after the USDX fell below 80 on July 24, the Dow slumped 311 points, US Treasury debt yields on paper of two year and upward maturity plummeted and the spot future Gold price fell $US 11.00. On August 3, the Dow plummeted again, falling 281 points, US Treasury debt yields also fell sharply. The only difference was that this time, the spot future Gold price did NOT fall, it ROSE by $US 7.90.
One day does NOT a "trend" make, but this is an exceedingly ominous development for the paper money powers that be. It is the very first indication that precious metals (Silver rose $US 0.16 on August 3) are not being looked at as simply an investment to be sold at the first sign of a "liquidity squeeze" but as a potential place to go to achieve "safety" from the meltdown in paper money investments.
Again, it is much too early to call this a turnaround in investment attitudes, but on August 3, Gold and Silver reacted as they would be expected to react to a sharp fall in the US Dollar AND to a renewed sell off on US stock markets.
This week began with a burst, as US Treasury Secretary Paulson put in a request to the US Congress to raise the Treasury's debt ceiling (currently $US 8.965 TRILLION) "soon" as he estimates that the Treasury would run out of "borrowing authority" at the current limit by October at the latest. A glance at the Treasury's debt to the penny page shows his concerns to be well founded. On July 30. the day that Paulson made his request to the US Congress, the official debt was $US 8.909 TRILLION. On August 2, the latest data available, it was $US 8.945 TRILLION. That leaves a "buffer" of $US 20 Billion.
Delving a bit deeper into the recent history of the Treasury's funded debt brings forth an even more interesting (and ominous) fact. The total of US "public debt outstanding" is found by adding together the "debt held by the public" and the "intragovernment holdings". Since July 24, the day when the spot future USDX fell below the 80.00 level, the amount of Treasury debt "held by the public" has increased by $US 54 Billion. The amount in "intragovernmental holdings" has DECREASED by $US 11 Billion. In this $US 54 Billion increase in debt held by the public can be seen the results of the "flight to safety" since US stock markets started their current swan dive on - that's right - July 24.
Now, with the USDX on the verge of falling BELOW the 80.00 level for the second time in just over two weeks, and with US stock markets on the verge of freefall, the US Treasury is once again nearing its debt ceiling. The danger here is, of course, that if there is any type of political "wrangle" over raising the debt ceiling - and with a Congress controlled by the Democrats, there almost certainly will be - the viability of Treasury debt paper as a GENUINE form of financial "safety" will potentially come into question.
This is what we had to say about the first sage of the "flight into liquidity" last week:
"The NEXT stage in this debt aversion contagion is when the "safety" of government debt paper comes into question. Gold has sold off this week, partially as a knee-jerk flight into "liquidity" (the "liquidity" of paper IOUs) and partially in an orchestrated effort to debunk any alternative to the "liquidity" of paper IOUs. That always happens in the initial stages of a mistaken "flight to quality". Later, a realisation dawns as to where the real financial "quality" is. There's no way of knowing how long that will take, but THAT'S when the flight to liquidity becomes a flight to Gold - and REAL goods."
This week, Gold has withstood the liquidity squeeze AND the "flight to safety". It has actually risen in $US terms, and that rise has accelerated as the fall on US stock markets has accelerated again. Yes, money is still pouring into US Treasuries, but the question must be raised: "For how much longer?"
The FOMC meets next Tuesday (August 7). The clamour is increasing for them to start LOWERING official US rates again, if not at this meeting, then certainly at the one scheduled for September. The ominous lack of demand for credit, specifically by US consumers whose borrowings account for about three-quarters of US GDP, is getting worse. US and global merchant and investment banks are being forced to take loans onto their own books because they can no longer find ANYBODY to "pass the parcel" to. And the US Treasury is on the verge of once again demonstrating the stark fact that their only function is to borrow and spend with the nearing of their debt ceiling.
In short, the situation on the global paper money markets and with the global paper money SYSTEM is deteriorating fast. Worse still, it is SEEN to be deteriorating.
$US 5 x 5 Gold Point And Figure Chart:
When Gold closed above the $US 670 level - at $US 673.70 on July 18, this chart turned UP again. It then rose to $US 680 on July 19. The spot future close of $US 660.10 last Friday (July 27) was not enough to cause a downturn on this chart. That would have required a spot future close of $US 655 or lower.
Please note the new all time high in the Yen Gold price set on July 20
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