Golden Rays of Hope
By William P. Kucewicz*
Gold's sudden and sustained rise of 4% against the dollar in the past week, coupled with a 1% gain in commodity prices overall, suggests Greenspan & Co. has finally loosened the liquidity spigot. An upturn in the monetary base of nearly 6% from a year ago also leads to this conclusion. The provision of much-needed dollar liquidity, along with lower interest and income-tax rates, portends an imminent Wall Street rally and a U.S. economic recovery that will be stronger than most current forecasts. The prospects for Europe and Japan, too, show glimmers of improvement longer term, with a global reflation apparently at hand.
The peculiar sequence of events in the gold market in recent days is strongly indicative of a Federal Reserve decision to become more accommodative. Throughout July and early August, dollar-gold kept to a narrow range of $265-$271 a troy ounce. That changed dramatically last week. Following a Wednesday afternoon London fixing of $266.40, gold surged nearly $2 during the noon hour in New York, ending the day at about $268. After uneventful trading the next day in Asia and Europe, gold resumed its uptrend at 6 a.m. New York time, breaking through $269 and reaching $271 by late morning. During the noon hour, it added another $2 to $273. Dollar-gold hasn't given up ground since, ranging between $272 and $278. Today's London afternoon fixing was $277.45, up from $276.25 in the morning.
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