Last week, our headline was very subtly different:
The only difference is one of punctuation. Last week a correction was not assured - hence the ?. This week the $US Gold price has dropped $US 18.00 (spot future closing basis. We most certainly DO have a correction - hence the !.
So, who are the ones saying "Eureka!" last week, when Gold fell $US 20 from a $US 390 intraday high in Asia to close the week on the Comex at $US 369.90? It should have been those who are knowledgeable about Gold and remember previous Gold bull markets. They would have known three things:
The first point is obvious, no bull market goes straight up. The second point is not so obvious but is nonetheless true, as an examination of any bull market will confirm. The third point is intimately familiar to those who remember any past Gold bull market: 1972-74, 1976-80, 1986-87, 1993-96, and now 2001-0?.
Gold has fallen $US 27 since it hit its 2002 spot future closing high of $US 379 on February 4. This is VERY reminiscent of what happened in August 1993, when Gold slumped from $410 to $380 in just over a week, or in October 1986 when Gold slumped from $US 448 to $413 in a little under three weeks. Or, for that matter, what happened in the last week of July 2002, when Gold fell from $US 324 to $US 302. All were corrections. All were almost certainly "helped" by intervention by the financial powers that be. And because of that, all were VERY sudden and VERY dramatic.
And who are the ones saying "Eureka!" this week, when Gold fell $US 18 from $US 369.90 to $US 351.90? It was undoubtedly those same financial "powers that be". The raising of margin requirements by 50% on the Comex last week has worked. Not only that, last week, Mr Powell testified to the UN and convinced many that the chances of a war in Iraq had increased - Gold fell. This week, France/Germany/Russia and now chief weapons inspector Blix have convinced many that the chances of a war in Iraq have decreased - no matter - Gold fell some more.
US trade deficits are setting monthly records. Treasury debt, as of Feb. 13, was almost $US 15 Billion ABOVE the Treasury's $US 6.4 TRILLION debt ceiling. US States are facing a cumulative annual deficit of $US 105 Billion which they CANNOT borrow to cover. More than a week after Mr Bush presents his 2004 budget, Congress finally clears up the mess of his 2003 budget. WORLDWIDE opposition to Bush and Co's Iraq war plans, from government and private citizen alike, is growing exponentially. In short, US "policy" - geo-strategic, military, financial, fiscal, you name it - is in a highly visible SHAMBLES. What happens? Simple. Gold falls more than $US 40 - intraday high to intraday low - in less than two weeks.
This is a notable achievement for the (US) financial "powers that be". Please note this carefully. The US establishment can take a lower Dollar. They can bear up under lower stock markets. They can take ballooning US debt and deficits. But they CANNOT take a runaway $US Gold price. Why? Because this is the ONE event (haven't we already had all the others?) which would guarantee a stampede OUT of US Dollars and US "assets". What the US establishment CANNOT take is anything that strips them of the POWER generated by the status of the US Dollar as the world's reserve currency. It's a simple as that.
The problem - for them - is that Gold was in a PRIMARY bull market when it hit its 2003 high on February 4 and it is still in one. If you want the best observational evidence available that we are still in the EARLY stages of this bull, consider the reaction to Gold's fall this week. That's right, it was a mass gnashing of teeth, ESPECIALLY amongst holders of Gold "derivatives" and Gold stocks.
In the world's stock markets (except Japan's), at any time over the last half of the 1990s and to this day amongst an astonishing number of investors, a market correction of the nature of the one which Gold is now undertaking would be caused little or no worry. It would have been seen as an opportunity to buy more. Remember, the "buy on dips" crowd ruled for years.
Bull markets begin and take off in a climate of worry, concern, and disbelief. Once that wears off, complacency takes over. And once the bull market really takes off, greed becomes the ruling emotion and any concern for what might happen in future is jettisoned entirely.
It should be perfectly obvious to all who have watched the reaction to this Gold correction, and who have been watching the underperformance of Gold stocks (and silver) since Gold began to accelerate last December, that the Gold bull market is still firmly climbing a steep WALL OF WORRY. That, in turn, is the signal feature of the INITIAL stages of ANY bull market.
We have read countless postings on the net to the effect that the Gold bull market is OVER. These were starting even before Gold re-entered its post April 2001 upchannel. Please take a good look at this chart. How in blazes could anyone jump to the conclusion that the bull market is over?
Better still, take a look at this chart - or this chart. It is impossible to make any other conclusion from these longer term charts that the Gold bull is just getting STARTED.
We are fully aware that there is a legitimate concern for "worry" when dealing with Gold, simply because it is NOT in the best interests of the financial powers that be that it climb in "price" against paper currencies. But as King Canute demonstrated more than a thousand years ago, no political potentate, no matter how great his power appears, is omnipotent. Gold has been ardently and inventively suppressed for decades. The suppression peaked in the period 1997-2002 at prices of less than $US 300. In short, the Gold "spring" was coiled very tight indeed. It has only begun to uncoil.
The evidence that the US is losing its "hold" on the rest of the world grows daily. We have already - since early December - seen a fast rising Gold price as one of the most telling pieces of this evidence. Next week is "crunch time" at the UN, and quite possibly for NATO and even for the US/EU relationship itself. In all this, Saddam and Iraq is a convenient sideshow.
With the US embattled on ALL these fronts, will it attempt to force Gold yet lower? Quite possibly. Will it succeed? Quite possibly, no one can know. But we can do no more than point out what we have been pointing out for almost a year now. Gold is in a PRIMARY bull market, coming off a base not seen since it broke away from its government-mandated level of $US 35.00.
Finally, a case can be made for the contention that this Gold bull market has only really got going since Gold accelerated upward in early December 2002. This is so because it was this upward acceleration which finally pushed $US Gold above its previous BOTTOM - the one set in 1993 at $US 325. All previous Gold bull markets - with one exception - started at levels well above the previous bear market low. The exception was in 1985 when Gold dipped slightly below its 1982 bottom. 1985 was the peak of a multi-year $US bull market which had been fuelled by the 20% interest rates needed at the start of the 1980s to prevent the Dollar from collapsing altogether.
Right now, with spot future Gold at $US 352, it is only 8.3% above the BOTTOM of its previous bear market - the one in 1987-93. That is one reason why most Gold investors are still WORRIED about Gold. It hasn't risen nearly enough to make them complacent, let alone greedy, yet.