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The Non-Event of Gold at $400
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(December 7, 2003) On Monday, December 1st, gold in New York closed at $402.70 - the first close over $400 in seven years, and just 3% away from a 12-year high. The dollar made new lows against the euro, and recent lows against the yen, the pound, and pretty much anything else of value you can think of.
So gold prices, after flirting with the $400 level for weeks, finally plowed through and even stayed above $400 for the whole week of trading. We report this fact here for the record, since you may not have heard a word about it in the general media. Basically, the dollar is getting trashed, and $400 gold is a quite significant symptom of that event.

Pretty newsworthy stuff, you might think.

Personally, I had always imagined that $400 gold was a headline-type event. Maybe not front page news in this era of gold-ignorance, but at least worthy of an article in the business section of the Arizona Republic that graces my driveway every morning. And certainly worth a few columns in the money-minded Wall Street Journal.

But my local blat, which dropped commodities coverage back in the '80s, couldn't even muster up a word about gold. The Wall Street Journal did come through with a sub-headline mention of gold being over $400 for the first time since 3/27/96 (with a little chart) on the front of its "Money and Investing," section. Less than golden was the "Futures" column, being full of natural gas, cocoa, and copper.

Elsewhere in that same edition of the WSJ, under the headline "Dollar Faces Building Pressure," we got some ostensibly reassuring spin about the devaluation of that currency by which most of us measure our assets:

"A weaker dollar will help wean the world off U.S. demand and force other governments to deploy other levers of growth - tax cuts, investment credits, lower interest rates, budget deficit spending." Says Joseph Quinlan chief market strategist at Banc of America Capital Management. Over time, he adds, the weaker dollar could be one part of the equation that leads to a more balanced global economy…"

Sounds downright positive when you put it that way, doesn't it?

I guess I once imagined that gold at $400 was a milestone that would cause people to sit up and take notice. Clearly, I was wrong. It has taken me this whole week to understand that $400 gold, to the world at large, really is no big deal. After all, gold prices have been here before, hitting $400 for the first time in 1979. Gold traded on both sides of $400 during the 1980s, and even reached that number briefly in the early 1990s.

So, there's really nothing particularly newsworthy about $400 gold. For that matter, when gold reaches $500, $600, and $700, it's just returning to levels it first reached over twenty years ago.

Which brings us to my new theory as to what it will take for gold to make the news: $800.

Because $800 is a memorable number from long ago. I can see it being played up in the media like the return of some long-forgotten era - the nostalgia of $800 gold! Yes, remember those heady days of Jimmy Carter, hostages in Iran, the Hunt brothers buying all that silver - oh, we were so young, so naïve in our worries about the possible collapse of the dollar! And here it is, 25 years later, gold is $800 again, but our country's flag is still waving, we're still spending those same old paper dollars at our local Walmart, and maybe the price of gold, oil, Big Macs, cable TV, and pretty much everything else we spend our dollars on keeps going up, but isn't that just the way things are? So what if some old element called 'gold' now costs $800 or even $8,000 an ounce - didn't comic books cost a dime back in the old days, and now they're four or five dollars? I mean come on, Gramps, that was then, this is now, so what's the big deal?

No, the lack of fanfare as gold reached $400 is just another reminder that gold is a long, long way from garnering any significant investor interest here in the USA. Despite much higher prices, its domestic demand 'tipping point' is still quite a ways down the road. Sure, we sell a lot of gold right here on this website, and probably a few dozen other outfits in the US also sell significant amounts of gold bullion to domestic investors. But all the current investor demand for gold in the US probably doesn't even total a tenth of 1% of what the mutual fund industry rides herd on.

The fact is that Americans today just aren't buying nearly the volume of gold bullion that their parents and grandparents did back during the late 1970s. In this country, gold's tremendous performance since April of 2001 has barely stirred a smidgen of new interest in holding the original 'cold, hard cash.'

Contrarians, who have already accumulated a lot of gold over the past few years, still find a lot to love in this gold market. It's being ignored by the media, sold into by many veterans, and remains invisible to the great bulk of US investors - i.e., the boomer generation that now holds all those shaky dollar assets.

At this time, $400 gold may not make the headlines. But in my opinion, before this decade is over we'll look back on $400 gold like today we vaguely remember the ten cent candy bar.

-Richard Smith

 

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