In the Late May issue of The Privateer (#604 - published on May 25), the main theme is the incredible speed and extent to which the US is being ignored in political and economic arrangements between nations and groups of nations which have been springing up like mushrooms over the month of May. In the midst of all this Mr Bush has just returned from a five-day trip to the Middle East, a trip during which he accomplished precisely nothing. The Saudi offer to pump an extra 300,000 barrels of oil next month is, in essence, and "insult". It is a pittance.
Mr Bush and his Administration are now the lamest of ducks. The only potential left for them to influence world events is their continuing bellicose stance against Iran, and they have kept this one up for so long now that it has lost much if not most of its effect. Mr Bush's "popularity" with the American people is the lowest in presidential history. The only reason he is not yet being totally ignored is the fact that the Democrats have not yet settled on a presidential candidate and the fact that he still might decide to attack Iran.
But as a financial or monetary colossus, the US is a spent force. Governments all over the world have long realised this but have continued to "go along", not being ready or prepared for an alternative to a US Dollar centric global monetary system. But that "quiescense" has been unravelling ever since the "freeze up" of global lending by the commercial banks last August. Over the last month, it has ceased almost entirely.
The main reason for this is the simple fact that the "powers that be" in the US, both in Washington DC and on Wall Street, have done absolutely nothing to even address the underlying problem, let alone come to grips with it in any way. Their "solution" remains the same as it has always been. Keep on churning out new "money" from the central bank, prevent any questionable debt paper from ever being valued on any type of market, and jawbone like crazy. Unsaid but essential to all this is the expectation that the rest of the world will continue to play along, to keep sending the US real goods in return for debt paper, and to recycle all or most the US Dollars they get into US government debt paper thereby propping up the US trade, current account and budget deficits for another month, or week or day.
But as shown by the unprecedented level of global political deal making - none of it involving the US - which has gone on throughout the month, the recycling of US deficits is standing on very shaky ground indeed as the northern hemisphere approaches its summer.
This week, the US Dollar Index (USDX) fell a full point to 71.97, once again approaching the all time lows it set in Mid March this year (when Gold topped $US 1000). US stock markets had one of their worst weeks of the year, with the Dow losing almost 4.0 percent on the week. Worse still, Treasury yields did not budge on a week to week basis. In fact, until the Dow's fall of 146 points on May 23, Treasury bond yields were UP on the week. They fell on May 23 on the prospect of the long (Memorial Day) weekend and a surge by American investors selling stocks for what is still (in the US at least) seen as "safety".
On the day that the US Labor Department released the latest figures on US consumer price growth, Gold closed at $US 866. Less than two weeks later, on May 23, Gold closed at $US 926. At this level, Gold has now recovered almost exactly half of its mid March - late April losses. And most of that has been done in the last seven trading days.
Sooner or later, inevitably, the rest of the world was always going to stop accumulating US Dollars and US Dollar denominated debt paper. The flurry of international agreements which have been THE signal feature of the month now ending shows clearly that it is much more likely to happen sooner rather than later. The US financial and political establishment is watching all this with growing concern but gives no indication of having decided on a course of action to stop or deflect the momentum. It is likely that they have left it too late and that there IS no course of action left open to them.
Financially, the global squeeze is now on the US itself. Oil is still priced in US Dollars, that is why it has soared so high. The sellers of oil are increasingly reluctant to accumulate more and more Dollars in exchange for their oil as the future prospects for the Dollar continue to worsen. Were oil priced internationally in a stronger currency (the Euro, for example), its price would not have soared nearly as much because there is still confidence in the future of that currency and "assets" denominated in that currency offer a reasonable actual and potential rate of return.
Gold too is still internationally "priced" in US Dollars. It has spent almost the whole of 2008 at levels never seen before in the history of the US Dollar. It has now established a wide "trading range" between its old highs around the $US 850 level and the $US 1000 level it reached six weeks ago. Today, we are right in the middle of that range.
How long will this range remain intact? That is impossible to say. What we CAN say is that the pressure UNDER the Gold price is enormous. The rest of the world has already lost confidence in the US Dollar and in US Dollar denominated financial assets. When Americans follow suit, and they will, there will be no way left to keep the lid on.
On March 17, we added the $US 1000 "X" to this chart - and that is as far as Gold got. As you can see, Gold has descended in three large "spurts" since then, the most recent taking it all the way down below the $US 855 level - Gold closed at $US 850.90 on May 1. Two weeks ago, the chart has turned up again with the close above the $US 885 level on May 9. And now, with Gold at $US 925 on the chart, half the post March 17 fall has been regained.
(Chart appears here in original analysis.)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March. But then came the big Gold sell-off - in two stages - the second of which has now bounced from the $US 850 level to now recover about half of its losses since March - in $US terms.
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