On Precious Metals and the Euro

The euro has achieved a 50% retracement of its move from $1.60 to $1.23. I never got into my euro short call I made some time back. I will be watching it closely for an entry point, which I suspect I will be sometime in the new year as opportunities arise to sell stocks.

One has to be very heartened by the move in gold and silver if one is a precious metals bull. If one shorts the euro against the dollar, I would not necessarily expect gold and silver to hold up.

Gold will go down if the world is in a deflationary spiral. The gold perma-bulls/bugs are trying to have cake and eat it too, arguing that gold will rise in either an inflationary or a deflationary. I think this argument is nonsense, and gold’s descent this year from $1032 to $682, and silver’s decline from $21 to $8 is indicative of what happens to precious metals during deflation.

However, I have always maintained that the end game for the precious metals would be a top when nations are engaging in competitive devaluations of each other's fiat currencies against one another. If so, then a rise in the dollar would not be met with a concurrent decline in gold and silver.

Comments

[Incae:]

To clarify: I believe that this debt crisis will turn into a currency crisis. Theory of games take over as governments break rank in " global" monetary policy. TORO is suggesting that if a currency crisis indeed comes soon then precious metals ARE a good play??

2008 Dec 19 01:01 AM

[bowman711:]

I would say that gold should be viewed as a store of value. Whether it is faced with inflation or deflation, eventually - sooner or later - gold should find its equilibrium in relation to the rest of the economy. Thus, if gold will buy one 'good suit' at equilibrium it will buy one 'good suit' whether it is priced at $200 (deflation) or $2,000 (inflation) when equilibrium is reached sgsin after a significant change. The value of gold may vary greatly during times of change, but eventually it should find that 'good suit' equilibrium level again.

2008 Dec 19 12:51 PM

[Charles Lon...:]

The first comment to this article asks what the author is saying.
That pretty much sums it up!
Whether or not gold will buy one good suit is a good reference.
However, the fact that gold must first be SOLD to buy that suit is what makes
the point. Having your cake and eating it too, as mentioned in the article,
is really about that suit you did or didn't purchase.
"Whoops..., there goes gold..., I guess I'll have to settle for a sweater vest.
See tradingwellandliving.b... for link to how to buy the stuff.

2008 Dec 19 02:53 PM

[capt Brian:]

hmmm, [sounds like]folks are beginning to give up on Gold and Silver? Yup that is a statement and a question. Now about every time in the past the usual investor gives up on something good, it is time to buy. Now be very wary of the folks that say, they made a mistake, gold is NOT going up.
you see, when it is going down, they want you to buy their gold, and when it is going up, they want to buy your gold. Besides, it is all controlled anyway, so just don;t get too heavy in any one thing. Go with the flow, swimming upstream is always too much trouble for too little headway (profit)

2008 Dec 21 11:07 AM