Tuesday, October 6, 2009

Gold Breaks $1040 Level as The Independent Speaks of Secret Meetings to Run from the Dollar; Australia Raises Interest Rates

Preface: I'd like every pundit who a year ago was saying the United States would be the first to recover due to 1st grade association games i.e. "first in! first out!" to come to CNBC and apologize. They still get the same air time, despite a litany of nonsense dogmatic calls, but no one calls them out for this constant drumbeat of "wrong".

While the US staggers like a drunken bum, Australia has become the first G20 country to raise interest rates overnight. I'd expect the same from India, Brazil, and a few other Asian countries in the next 6-9 months. Just about every country in the G20 ex UK, Spain seems farther along in the "first in, first out" game.
  • Australia's central bank raised its key cash rate by 25 basis points to 3.25 percent, saying it was safe to pull back on stimulus spending. It is the first G20 central bank to raise rates.
This immediately puts pressure on the dollar as countries which pay higher rates on capital will see inflows.

This followed a story last night from the UK paper The International: "The Demise of the Dollar" which proposes that secret meetings have been going on between Arab oil states, China, Japan, France, and Russia to begin pricing oil in something not called the US dollar. I've read The International from time to time, and some of what they write is sensationalist (in my opinion) and this story has zero sources so I am not going to repost it here. You can follow the link above to read the whole thing - but in summary:

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

Heck for all I know Tim Geithner leaked this story, as the leadership of America has only 1 plan to take care of the economy and our massive debts. Inflate inflate - and then inflate more; best accomplished by destroying American savers with a systematic deflation of the US peso.

So you know what these 2 things mean ... the nascent "recovery" in the dollar from massive oversold status was shot in the heart overnight and all the world's trading computers go into the same old trade - sell the dollar, and buy every risk asset on the planet. This has led to a new all time high in gold, as we've peaked over $1040. Silver is also up roughly 4%, well north of $17 again...
  • Gold rose to a record on speculation that inflation will accelerate and erode the value of the dollar, boosting the appeal of the precious metal for investors seeking to preserve their wealth.
  • “Gold has just begun its ascent,” said John Brynjolfsson, the chief investment officer of Armored Wolf LLC, a hedge fund in Aliso Viejo, California. “As central banks print more and more money, the private demand for gold as an investment and inflation hedge is destined to grow. It’s pretty clear that gold will be at $2,000 by 2012, and it could happen a lot faster.”
  • Gold held in the SPDR Gold Trust, the biggest ETF backed by the metal, reached an all-time high of 1,134 metric tons on June 1 and was at 1,098.07 tons yesterday. The fund has passed Switzerland as the world’s sixth-largest gold holding.

I am not even holding silver and gold for inflation concerns - I think deflation (in the real economy) is more the near term risk since the US economy is so poor. However, we can have deflation in the real economy while we have inflation / asset bubbles in the Wall Street economy... my main goal is holding these precious metals as a store of value against a leadership regime intent on destroying our currency to create "prosperity". I will repeat this - all those celebrating the destruction of the dollar have to ask at what point it stops being a "good thing" and turns into a "bad thing". But for now, the worst the dollar is - the better for all things priced in dollars.

As for the S&P 500 this rebound should look very familiar; in fact identical to the last two rallies.

Long Powershares DB Gold Double Long, Ultra Silver Proshares

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