When the Dow first broke above the 10000 level (on a closing basis) on March 29, 1999, Gold had already spent well over a year languishing below the $US 300 level. Sub $US 300 Gold doesn't seem like a big deal now, but remember, when Gold fell below $US 300 in November 1997, it was the first time it had done so since Feb/March 1985.
After the "Washington Agreement" was signed in late September 1999, it looked like Gold would "win". The $US Gold price spiked from the low $US 250s to the high $US 330s in less than a month. But Gold couldn't hold above $US 300. Then, in February 2000, about a month after the Dow had made what will almost certainly prove to be its all time high of 11723, Gold spiked above $US 300 again. That rise didn't hold either.
Meanwhile, from March 1999 to March 2001, with a couple of brief forays below it, the Dow held fast ABOVE the 10000 level. The Nasdaq fell 60% and more from its March 2000 highs. The S&P 500 confirmed a "bear" market by falling 20% plus from its March 2000 highs. And STILL the Dow held.
As long as that 10000 level on the Dow held, the faith that the GREAT U.S. post-1982 BULL market was still intact held. It held through the process of nearly $US 6 TRILLION being wiped off market capitalisation as the Nasdaq crashed and the S&P 500 dived. It held, above all, because of the unshakeable faith of Wall Street and Main Street alike that Mr Greenspan and the Fed would save the day and re-fill the punchbowl.
Well, Mr Greenspan and the Fed have certainly tried. With the exception of a short hiatus in early 2000, which knocked markets off their highs in the fist place, the Fed has been feeding "reserves" into the system in ever increasing streams since mid 1999. In May 2000, the Fed stopped raising rates. And on the first trading day of 2001, they started LOWERING them.
But this week, everything unravelled. On Monday, the Dow closed at 9959, as anticipation peaked that the Dow would take a meat cleaver to rates. On Tuesday, (March 20), the Fed cut rates by 0.50% for the third time in eleven weeks. It was not enough. Two days later, on Thursday, March 22, the Dow hit a low of 9106 with two hours left to trade before a "rally" brought it up to close at 9389. And the Dow closed the week at 9504 - 500 points BELOW the 10000 floor it had enjoyed for the past two years.
Barring a "miracle", the Dow has "won". The Dow broke below the 10000 level before Gold could break above the $US 300 level. The huge BULL market on the Dow, which began at 776 in August 1982 and topped out at 11723 in January 2000, is OVER. The Dow has not yet CLOSED 20% plus below its all time high - the "street" definition of a "bear" market - it has merely fallen below that level intraday - on March 22. But EVERY bit of evidence, both economic and technical, tells us that the 10000 level has been broken - and that it's a LONG way down from here.
The "confidence" of American investors in their stock market, which has amazingly survived the huge dive on the Nasdaq and the big dives on other major U.S. indices, will NOT survive this swan dive on the Dow. There is already evidence to show this. A Time/CNN poll shows that 49% of Americans "expect a recession within 12 months". And one in four is planning to postpone or cancel any "big ticket" item buying for the foreseeable future.
A U.S. recession is now expected by the man and woman on the street. That is the final straw for the stock markets. The only "assets" left rallying in the U.S. are Treasury debt and the Dollar itself. And in a GENUINE recession, that can't last. The question is now, if the Dow has "won", how long will it be before Gold "wins" too.
The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
A "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP. Just as the Dow has had a 10000 floor for two years, so Gold has had a $US 250 floor. Gold has refused to break below its floor, but it is still a long way below its post November 1997 "ceiling" of $US 300.
The chart of $US Gold is above. Here are the charts of Gold in the other currencies we cover.
Gold in Yen
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
In $A terms, Gold is in a BULL market, having broken decisively above the downtrend it has been in ever since 1986. In Yen terms, Gold has established a new uptrend. In Euro (and D-Mark) terms, Gold is consolidating at levels well above its 1999 lows (when Gold was $US 253). In EVERY major currency, Gold is either in a bull market, or has decisively changed its trend from down to up, or is consolidating well above previous lows.
Only in U.S. Dollars is Gold still languishing, and it is languishing only because of the mad rush into U.S. Dollars from all over the globe which has taken place over the past three weeks.
"We have said this before, the U.S. Dollar and Gold cannot co-exist - AS MONEY. That was proved in the 1930s, and in the 1960s and 1970s too. The great GOLD holding down operation which has hit warp speed since 1996 is building to a crescendo. And right now, there is no way of knowing whether the final trumpet will be a Gold Dive and a Dollar explosion, followed by a fantastic reversal, or whether Gold will hold its recent lows and start to rise more sedately again."
(Gold Last Week - March 16)
This week, Gold has held its recent lows and is slowly inching up in $US terms. Now, we await the final realisation inside and outside the U.S. that the Bull Market which has lasted for an adult lifetime for anyone much under the age of 40 is over. The pressure is building inexorably under Gold. Stay tuned.
