by Bill Buckler / The Privateer
Money - An "Assay"
What Is Money?
The Evolution Of Money
The Case For Gold
Money - The REAL Thing
A History Of U.S. Paper Money
The Early Gold Wars
The Hidden Gold Wars
The Trading Range 1994-1996
"Annus Horribilus" 1997
Below The Floor 1998-2001
The Trading Range 1994-96
With the exception of a short-lived
sojourn above the $US 400 level in February 1996, the $US Gold
price was "trapped in amber" for two years, from the
beginning of 1994 to the beginning of 1996. For all but about
a month of those two years it was caught in an extraordinarily
tight $US 20 trading range between $US375 - 395. By late 1995,
the volatility on the Gold market had reached its lowest level
since the late 1960s, when the Gold price was officially capped
at $US 35 an ounce.
Consider what had happened during
this three-year trading range:
A debt crisis in Mexico.
A debt crisis in the State of California.
A global bond market bloodbath - in 1994.
A trade war between the U.S. and Japan averted at the last second.
A huge boom on the U.S. stock market - in 1995-96.
The U.S. Dollar plummeting to record lows against the Yen and
multi-year lows against the D-Mark.
Debt collapse and actual deflation in Japan.
The near total dependence by the U.S. Treasury on foreign buyers
to buy newly-issued U.S. government debt. Foreign Central Bank
holdings of U.S. Treasury debt expanded rapidly throughout the
A "balanced budget" debate in the U.S. which led to
two government shut downs in October 1995 and January 1996.
A $US 600 Billion increase (to $US 5.5 TRILLION) in the U.S.
Even more interesting, this
Gold "trading range" against the U.S. Dollar has not
been reflected in the Gold price of other major currencies. The
high and low spot Gold prices against the world's three major
currencies over the three year period 1994-96 were as follows
"Change" is the percentage
difference between the high and low prices
Yes, the U.S. Dollar did some
spectacular swoops and dives against the other two currencies
over these two years, but that's not the point. The point is that
the U.S. Dollar Gold price stayed so stable, despite all
these swoops and dives.
How was Gold kept in such a
narrow trading range against the Dollar? Through the use of the markets
for "derivative" paper instruments based on Gold; through unprecedented "forward selling"
programs undertaken by Gold
producers; through "Gold
by Central Banks. And, in a pinch, by the actual sale of Gold by Central
In the U.S., the other main
feature of this period, especially in 1996, was a huge boom on
the stock market, relentlessly falling unemployment, and price
increases in the economy which slowed to a crawl and, in many
cases, actually went into reverse.
The Purpose of the "Trading
There were actually several
To encourage the attitude that
Gold had lost its former use as a "hedge" against price
inflation and political and economic crises. This was done very
successfully. The last time that Gold reacted to political events
was the lead up to the Gulf War way back in late 1990.
To encourage the attitude that
(price) inflation was "dead".
To foster the attitude that
all the financial crises of late 1994 to early 1996 were under
control. After all, the Gold price was not reacting to them.
To give added credence to the
much-ballyhooed (especially in the 1996 election campaign), claim
that U.S. debt was under control and that the U.S. was smoothly
working its way towards a balanced budget.
The most important purpose by
To re-reinforce the notion
-- still held by millions of people throughout the world -- that
there was still a "link" between Gold and the U.S.
"Annus Horribilus"- Gold In 1997
1997 was the third worst year
for $US Gold since the price became subject to market forces in
1971. The worst year was 1981, when Gold was coming off an $US
850 blow off high the previous year and battling 20% plus interest
rates. The second worst year was 1975, the year when Americans
regained their "right" to own Gold for the first time
1997 has to be broken up into
two halves. In the first half of 1997, stock markets everywhere
- including Asia - were booming and Gold was sliding very slowly
in terms of most currencies.
The second half of 1997 was
when the Asia "flu" hit the world's markets. What started
as a currency crisis in Thailand in July had, by the end of the
year, expanded into a global financial crisis of unprecedented
The dividing line between these
two six-month periods can be neatly drawn by the hand over of
Hong Kong back to China on July 1, 1997. Hong Kong was the last
Asian "nation" to be governed by a foreign power. Within
weeks of this hand over, the 30-year era of the Asian "Tiger
Economies" was over.
Here are the signal events of
1997 - especially the second half of 1997:
- March 25 - US Fed raises rates
by 0.25% to 5.5%. This is the only rise for 1997
- Mid June - Denver G-7 meeting.
US boasts its economic "management" to the annoyance
of Asian and European guests.
- Late June - Japan's Hashimoto threatens to sell US bonds
and buy Gold
- July 2 - Aussie Reserve banks
announces (already completed) sale of 167 Tonnes of Gold.
- Early July - Thai Currency
crisis hits stock market and spreads quickly throughout S.E.
- Aug. 6 - Dow hits what proves
to be the high for the year - 8259 points.
- October - Asian crisis hits
Hong Kong, Korea and Japan. Plummeting currencies and markets.
In the U.S., the Dow falls 1000 points in less than a week before
- Nov. - Dec. - IMF moves in
to offer bail-outs. Gold sell of steepens. U.S. Dollar, universally
regarded as THE safe haven, surges. Gold falls almost $US 60
to its lowest level since 1979.
- End of year - Korea within
days of bankruptcy. Japanese market in free fall. Asian currencies
crashing. Gold anchored firmly below $US 300.
In 1981, Gold's worst year,
the world was locked in recession. In 1975, Gold's second worst
year, the world was locked at what was described as "stagflation"
-- rising (price) inflation and rising unemployment. This
was an economic phenomenon held to be "impossible".
In 1997, Asia went into an economic
and financial death spiral which can only be compared to what
happened to the world in the Great Depression of the 1930s. But
this was not a worldwide phenomenon. In Europe, markets
boomed all year. In the U.S. markets boomed, the economy boomed,
unemployment hit 30 year lows, and the Dollar became the most
sought after investment in the world.
On November 26, 1997, the spot
future Gold price closed below $US 300 (at $US 296) for the first
time since March 15, 1985. Gold ended 1997 at $US 289.90.
The $US 300 "floor" which had supported Gold ever since
it first rose above that level in July 1979 had now become
Gold 1998-2001: "Below
Take a long-term look at most
types of investment, especially most types of investment "class",
and highly significant support and resistance levels will become
apparent. Two excellent examples of this phenomenon are the 1000
level on the Dow Jones Industrial Average and the $US 300 level
Dow - The 1000 Level
Until mid-1954, the all time
high for the Dow was 381.17, set on Tuesday, September 3, 1929.
That's right, the
1929 high was not breached for 24 years. By 1966, however, the Dow had left that 1929
high far behind it. In February 1966, the index reached a high
of 995. That was the Dow's first trip to the 1000 level.
The Dow made many more trips
to that 1000 level. It reached it in late 1968, and it actually
broke through it (barely) in early 1973, mid 1976, and mid 1981.
But the Dow did not decisively breach that 1000 level until the
beginning of 1983. For
seventeen years (1966-1982) the 1000 level on the dow remained a formidable resistance point.
Gold - The $US 300 Level
Up until 1934, the "official"
Gold price was set at $US 20.67. From 1934 until 1971, the "official"
price was $US 35.00. Gold did not reach $US 300 an ounce until
July 1979. But once Gold breached that $US 300 level, it never
went back below it for long. Between July 1979 and November 1997,
Gold only traded below $US 300 twice -- for one day in June 1982
and for three weeks in Feb/March 1985.
Just as the 1000 level had stopped
the Dow for 17 years (1966-'82, the $US 300 level supported Gold
for 18 years (1979-'97). For nearly two decades, $US 300 was the
FLOOR for Gold.
Below The Floor
On November 26, 1997, Gold (spot
future) closed at $US 296.00. That was the first Gold close below $US 300 since March 15, 1985. It was only Gold's third trip below
$US 300 since it had first breached that level (on its way up)
in July 1979. For all but a few weeks of the last three years
-- see the chart above (as of July 2001; current chart available
through The Privateer) -- Gold has traded below $US 300, a phenomenon
unprecedented in almost two decades.
The beginning of Gold's sojourn
"below the floor" coincided with the transformation
of the Asian Crisis from a "glitch in the road" to a "Global Crisis". Those were President Clinton's
descriptions of events, the first in July 1997, the second in
early December 1997.
1998 was the year that the Asian
Crisis did indeed become global, culminating with the Russian
debt default in August and the Fed lowering U.S. interest rates
three times in seven weeks in Sept. - Nov. 1998 to save the world.
1999 began with yet another
currency meltdown, this time in Latin America in general and Brazil
in particular. It continued with a war in Kosovo, and a landmark
on U.S. stock markets as the Dow broke above the 10000 level for
the first time.
This was the point at which
the War against Gold reached a crescendo. For nearly a year, the
IMF had been announcing plans to sell Gold. In early May, with
the Kosovo air war over a month old, all the G-7 nations, one
after the other, came out with statements approving these plans.
But despite this, Gold was moving up towards the $US 290 level
and even worse, Gold stocks in North America, South Africa, and
Australia, spurted upwards. By May 6, the XAU (Gold index) showed
a rise of 46.4% since the beginning of the Balkans war. That was
more than three times the rise on the Dow over the same period.
Then, on Friday, May 7, 1999,
of England (BoE) announced a plan to auction Gold. This is
what The Privateer had to say about this development at
the time: quote from our Early May 1999 issue - published
on May 9, 1999.
The significance of this move
was clear. To get the Gold price down to its level of the late
1970s, the Central Banks returned to the methods of the late 1970s
- namely Gold auctions. All the Gold suppression moves
since that time had been done "covertly", by means of
Gold leasing, forward sales, Central Bank lending etc. Now, that
was deemed insufficient by itself, and the BoE announced right
out in the open that it was going to auction Gold. The result
was predictable enough. By the time the first auction was actually
held in July 1999, Gold had retreated to 20 year lows of just
above $US 250.
Gold finally broke loose on
September 26, 1999 when the European Central Banks announced a five-year "freeze"
on their Gold leasing and lending activities. On September
20, 1999 spot future Gold closed at $US 255.
Just over a
week later, on September
28, it closed at $US
308. Gold then went on to
post a high (on a spot future closing basis) of $US 324 by October 5. The downward momentum had been broken.
But, as you undoubtedly know,
the $US 300 level had not turned from a "ceiling" back
into the "floor" it had been between 1979 and 1997.
Gold fell back below $US 300 by the end of October, and stayed
there until February 4, 2000. On that day, an announcement from
Placer Dome about curtailing their Gold hedging strategies coincided
with a $US 23.20 surge from $US 287 to $US 310. These announcements
were claimed to be the cause of Gold's second surge above the
$US 300 level in just over four months.
The real reason could be seen
right on the market for U.S. Treasury debt paper. The yield curve
had "inverted" with short-term yields moving above longer-term
yields. This phenomenon is always a sign of strained liquidity
within the system, and that is just what had occurred as the Fed
backed off its credit-creation in the wake of Y2K.
Still Below The Floor
Just as it did in October 1999,
Gold has also backed off from its early February 2000 surge above
$US 300. There can and will be no resolution of this struggle
and no new bull market in Gold until the $US 300 level, which
has been the "ceiling" for Gold since late 1997, once
again becomes the "floor".
Overview / History / Gold 1994-2001
(click for other sections of this three-part series)
by Bill Buckler / The Privateer
-- The Private Market
Letter for the Individual Capitalist
The Privateer market letter
Publisher: William (Bill) Buckler
P.O. Box 2004, Noosa Heads, Queensland, 4567 Australia
Phone +61 7 5471 1960 - Fax +61 7 5471 1959
Australian Business Number (ABN): 99 805 118 934
This overview series was excerpted
Privateer's Gold Pages, providing an excellent context for
Bill Buckler's weekly gold comentaries as described below.
Gold This Week -- Bill Buckler says of this service:
"Our premier Gold commentary. We don't confine ourselves
to just the Gold price or the Gold market, we analyse Gold in
the context of the entire economic, financial, and (not least)
political situation. Includes a daily chart of the Comex spot
future Gold price and details on the course of trading and open
interest for all futures contracts. This page also includes complete
daily price data on spot future Gold (available for download
and updated weekly) going back to January 1996 - the start of
the current bear market.
"For more than five years
(January 1996 - March 2001), "Gold This Week" (our
weekly Gold Commentaries) was freely available to all who visited
The Privateer website. On March 3, 2001 (March 2 in North America),
Gold This Week (GTW), was upgraded, daily updates were included,
and the whole was made part of The Privateer market letter. All
Privateer subscribers have complete access to GTW at no extra
cost as part of their subscription."
There are two ways to access
Gold This Week (GTW):
Copyright ©2001 The Privateer
Market Letter. All Rights Reserved.
Reprinted by USAGOLD with permission of The Privateer and Bill Buckler. No further
reproduction without permission.
Return to the The
Gilded Opinion Index Page