A massive 2% rally capped a fourth week of non-stop gains in gold bullion and the metal broke through the near 28-year $800 barrier with relative ease prior to Friday's closing. Gold had already regained its footing overnight, as fresh dollar selling emerged once again after yesterday's feeble attempt at a rally. The metal's powerful surge is reflective of growing apprehensions that something, somewhere in the global financial system might go awry, despite interest rate maneuvers designed to keep things going.
Spot gold closed the week's last session not quite on its highs (which came near $808.50 per ounce) but still notched a $15.80 gain, in a completely counterintuitive move after the US non-farm payroll data and was indicated at $806.00 per ounce as the last few buy orders fell to the floor. Positive employment figures (and then some!) showing 166,000 jobs created in September did not appear to faze gold, or stocks, much less the US dollar (which slumped to 76.22 on the index) . Silver gained 30 cents to $14.53 and also benefited from safe-haven demand, while platinum followed in sync adding $10 to $1454.00 per ounce.
A Citigroup downgrade yesterday triggered a 362 point slide in the Dow which was then followed by 2% declines in Tokyo and London as well. Stocks did not manage a recovery today, despite very strong employment data in the US. The dollar still looked poised to touch the 76 mark on the index while crude oil refuses to give up its own anxiety premium and remains stubbornly above $95 a barrel. Under such conditions, gold and oil are being sought for the liquid and comparatively safer choices they represent. Fundamentals no longer play a major part in the picture as money seeks shelter from the various difficulties manifesting themselves in the markets. Investors have seen the wall of worry and it has (at least) $800 written all over it, although caution is still very much advised given how much value gold has picked up thus far without a correction. If this is a delayed reaction to Wednesday's rate cut or if funds are pushing the pedal to the metal to see just how far the shorts can hold out, remains to yet be seen. For the moment, the gold bugs are going to bed on cloud nine.
We minced no words in expressing our opinion that the latest rate cut ought not to have taken place as it engenders Pavlovian conditioning in the markets as to the automatic rate cuts that happen every time sour economic news wires. In addition, if these moves are (and they are) seen as a bailout of the gambling crowd then the 'moral hazard' issue will eventually overtake the short-term benefits they offer. Many of our readers are familiar with Jim Rogers and his views on the dollar, gold, and other commodities. While he recently opined that [since everyone expects it to drop further] the dollar was probably going to have a counter-trend rally of some magnitude and gold could decline accordingly, he plans to accumulate more metal when a fresh buying opportunity emerges. Yesterday however, Mr. Rogers put his jeans and cardigan sweater on, and...left the neighborhood. Rapaport News reports that:
The harshest criticism [of the Fed's rate cut] came from international investor and book author Jim Rogers, co-founder of George Soros' Quantum Fund, who told the BBC the Fed's decision was a mistake because its role is not to print more money and protect a few wealthy investors on Wall Street. Rogers told the BBC he has sold his home in New York and is moving his family to China mainly because the United States has lost its political and financial way.
Rogers, who wrote Adventure Capitalist: The Ultimate Road Trip, said the interest rate should be increased until fiscal responsibility returns to the nation. Expect more doom for the dollar in the years to come, Rogers said, as he urged investors to embrace the new 21st Century economy: China. Think about it. One of the icons of capitalism moving to China from the USA. There is nothing to comment here, other than perhaps we ought to check out those Rosetta Stone CDs from which to learn Chinese real fast...
The first full week of November trading will bring a lot of added excitement to these markets. You can safely skip the double-espresso as early as Monday morning and just watch the gold price instead. The jolt could be equally powerful.