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Gold Trades at a 15-Year High
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(November 5, 2004) On Thursday, November 4th, both the 2nd London fix and the New York Comex settlement came in at over $430 for the first time since 1989, while the dollar closed at new lows against the Euro. That’s not good news for our faith-based dollar…
Of course, in this stealth gold rally (up 60% during Bush II’s first term), the general public’s attention to gold, inflation, the weakening dollar, and the general threat to everyone’s dollar-denominated assets is virtually nil.

Scanning our local Arizona Republic newspaper’s Business Section this morning (Friday, November 5th) for any mention of gold’s price surge comes up with absolutely nothing. Lower oil prices are noted (a bargain at only $49 a barrel!), as is the fall of the dollar versus the Euro, on the off chance that any readers are planning a European vacation anytime soon.

But ignorance of gold is not just a local phenomenon – this morning’s New York Times also makes no mention of record gold prices. In fact, most US newspapers abandoned commodities reporting back in the late 1980s.

Those of us interested in some recognition of gold’s existence have to look elsewhere, such as in Europe where London’s Financial Times noted that “Traders said most of the interest in gold was through the futures market rather than through the physical buying of the metal. The December Comex gold contract peaked at $434 a troy ounce in New York.”

The Wall Street Journal did mention gold’s surge, although somewhat inexplicably they called yesterday’s price a “7-month high.” Gavin Maquire wrote the November 5th article noting the strong gold market, quoting Bernard Hunter of Scotia Mocatta:

“The dollar looks bad, and gold is technically appealing, so there’s definitely a bullish feel to this market at the moment…We could certainly see more funds coming into this market, and we have our eye on the big numbers overhead like $440 and $450.” Maquire also quotes Bill O’Neill of commodity advisory firm Logic Advisors: “The overall pattern here is bullish for gold. We expect to see more dollar weakness, as there are continuing concerns about the size of the US deficits, and there’s also some anticipation of inflation as energy prices remain so high…When you throw in a positive technical picture as well, this spells good news for gold.”

Good news for gold, of course, means bad news for nearly everything else associated with our economic well-being. As Richard Daughty, AKA the Mogambo Guru, rather starkly put it in his November 4th commentary, “The dollar resumed its inexorable decline to its intrinsic worth, namely zero.”

On the one hand the Federal Reserve recognizes that the dollar has to fall somewhat (20% is the number most commonly bandied about) in order to bring our trade accounts into some semblance of balance. But in this era of a pure fiat dollar, such talk of devaluation is a delicate thing. The rational minds at the Fed have long believed that what we call the “dollar” can be adjusted and tweaked into its proper balance, as has pretty much been accomplished so far in our post-gold era since 1971.

A measured amount of inflation, in the view of the Fed, is a good and proper thing. Moderate inflation gives businesses “pricing power,” and gives their employees the satisfaction, however bogus, of ever-larger sums in their paychecks.

In short, Alan Greenspan would argue, with impeccable mathematical logic, that shrinking the dollar’s value by 3% a year will never actually get it to zero.

However, the excitable Mogambo Guru and a host of other strict constructionists in the monetary field, backed by the lessons of history, would beg to differ.

 

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