©2008 The Privateer Market Letter
Even better, a three day weekend in both the US and the UK, the two major "paper Gold" trading nations in the world. Monday, May 26 was Memorial Day in the US and a bank holiday in the UK. The markets were closed in both countries.
Nothing much happened in Asian trading or even in early London trading on May 27. The London AM fix was $US 923.75, a couple of bucks lower than Gold had finished the week in New York the previous Friday (May 23). Even when the New York Gold futures markets opened on May 27, Gold started at $US 922.00. But by the close of trade, the spot future price was down to $US 907.90. And look at the volume in the data above. 301,000 contracts on the day. That's the first time that the daily volume has been over 300,000 since March 19, the day that Gold took a $US 59.00 swan dive from its perch just above the $US $1000 level.
Two days later, on May 29, the spot future price had tumbled all the way down to $US 877.20, again on HUGE volume. Over the four trading day week just ended, total volume on the New York paper Gold market totalled nearly one million contracts. That's probably a record for the year to date. Oh, and Silver was smacked too, of course.
The "reasons" given? The usual. A rise in the US Dollar. A fall in the $US oil price. A "revision" of official US first quarter GDP growth from 0.6 to 0.9 percent. Growing "confidence" that the Fed has finished cutting official US interest rates.
It's easy to get very angry at all this, and as a younger man your scribe did indeed get exceedingly angry at it. But having seen this so many times before, it is now actually more inclined to induce feelings of satisfaction or indeed hope than frustration. The more blatant it is, the more desperate the monetary "authorities" are becoming.
The paper markets for precious metals are "manipulated"? Of course. With all the other paper markets being manipulated within an inch of their lives, we could hardly expect the financial powers that be to neglect the markets for the alternative MONEY. The system as it stands is founded on the fact that any type of alternative medium of exchange to the one pumped out by those who rule us cannot be allowed to get a foothold. It may be tolerated as an alternative "investment", but it cannot for a moment be countenanced as an alternative medium of exchange. The influence of the government in the life of any nation is directly proportional to their control over what that nation uses as money. That is basic and fundamental. Government can't control Gold. It also can't control people who use Gold as money. It's as simple as that.
In "normal" times, when money is being inflated with impunity, the pressure to debunk the alternative is not great. But we do not live in "normal" times today, the monetary inflation has come home to roost, so the pressure to control the precious metals is extreme.
The monetary "authorities" can't control Gold, but they can control paper claims to Gold or paper derivatives based upon Gold. We saw another example of that over the week just ended. How much longer can this be maintained? That depends on how much longer people are more willing to accept what the government tells them about the state of the economy they live in than to accept the evidence of their own eyes - and minds.
The Fed has been inflating like maniacs ever since the credit crunch hit last August. Thus far, they have managed to just about hold the line for the US Dollar and US stock markets while watching the real economy fall out from under their paper markets. "Assets" based on debt are struggling mightily while the prices of real economic goods - raw materials of all descriptions - have soared. Indeed, the situation is now so "delicate" that yields on Treasury debt have now hit highs for the year.
We have said this many times before. All really BIG precious metals booms go hand in hand with RISING interest rates, especially rising rates on government debt paper. Rising Treasury yields indicate two things. One is the anticipation of higher prices - for REAL economic goods - to come. The other is a steadily increasing unease about the future purchasing power of the currency - the US Dollar. And well should this unease be increasing. There have been many reports this week that Asian nations are selling US Dollars in order to prop up their own currencies in an attempt to damp down double digit price inflation levels.
There are double digit price inflation levels in the US too, but they are NOT being reported. They are merely being suffered by those individual Americans who are still buying food or fuel. The chasm between economic reality and the statistical picture being put out by the financial powers that be has probably never been wider in US history. But it's still "working" on the paper markets for the precious metals. It will be interesting to see how much longer this lasts. The only thing we know for sure is that the longer it does last, the bigger the financial earthquake when it finally collapses.
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. Last week, with Gold at $US 925 on the chart, half the post March 17 fall had been regained. This week, Gold once again turned down and retraced two-thirds of thos gains, until the $Us 10 "uptick" on May 30.
(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 bounced from the $US 850 level to now recover about half of its losses since March by the end of last week. This week, two-thirds of those gains were given back in $US terms.
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