Gold Rises, the Dollar Falls: Is This Really a Good Thing? 30 comments
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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 U.S.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 except the 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 U.S. 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 U.S. 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 U.S. 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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This article has 30 comments:
When are you going to stop talking about the "destruction of the dollar" and see sense? What other economies have got themselves out of a situation like ours by strengthening their currency? Answer: none. If you're going to say that there haven't been other economies with conditions like ours then you'd be wrong. Nothing is ever exactly the same but there are strong similarities. Ourselves in the 30s is one example. Hoover tried protecting the dollar then and that led to a deep depression. Conditions only started to improve when the dollar was devalued and inflationary policies implemented. What was true then, is still true today.
We need to get the dollar down to something like fair value - a level at which we have balanced trade. That will give us exports, jobs and a chance to work our way out of these problems. You ask at what point the "destruction" of the dollar turns in to a bad thing. We are nowhere near it yet.
Unfortunately, the U.S. government is the biggest debtor on the planet (it has the incentive to debase the USD), it controls the USD money supply (it has the means to debase) and it controls spending policy (it has the incentive to incur further debt to buy votes).
If current policies are continued, the 2010s will be a lost decade for the U.S. economy, characterized by stagflation.
Everyone says "check with the experts" but many experts have been proven wrong.
I have to agree with Trader Mark's opening statement. A lot of the CBNC experts (and others) have been dead-on WRONG with their predictions, their assessments and their explanations of various issues.
I remember one saying the sub-prime mortgage crisis was nothing to worry about because it only effected 1-2% of the market and the other 98% were paying their mortgages. At the same time, I was doing research and seeing that foreclosures were on the rise (and published some articles on it).
Was he that far off or was he just trying to keep the heat off his Wall Street buddies?
Other great examples -
1) after dot.com crash - buy Blue Chips buy Worldcom, ENRON, etc. (pre-Sarbanes-Oxley).
2) "Real estate is the fourth asset class and you should diversify - pick up a condo" (Cash, Equities, Bonds, & "Real Estate" pitch after Sarbanes-Oxley, blue chip crash)
I have seen too many times that when someone is telling you - "you gotta buy now", it's because they want to sell, take profits and put it in the next "mover".
glad i bought my in the hand insurance. usually needing to use insurance means bad things happened.
Those of us who are shorting the US$ expect to be making plays thru 2012 (not that I'm predicting anything here). Schiff's books say it better than I can, but I also borrow advice from Rothbard, Mises, and Hayek.
"...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"."
Not sure what you mean due to the subjective nature of words. I celebrate the dollar destruction because I'm profiting mercilessly from it. One man's good thing is another man's bad thing.
"You heard it here first. I am making the call. The market has bottomed." You not only heard it here first, but you heard it many times.
On Oct 07 07:21 AM chap08 wrote:
> You say that "deflation (in the real economy) is more the near term
> risk since the U.S. economy is so poor" and yet you, like so many
> others, are scared s**tless by a devaluation in the dollar. That's
> a dollar, by the way, which is still trading higher than it was before
> the crisis began.
>
> When are you going to stop talking about the "destruction of the
> dollar" and see sense? What other economies have got themselves out
> of a situation like ours by strengthening their currency? Answer:
> none. If you're going to say that there haven't been other economies
> with conditions like ours then you'd be wrong. Nothing is ever exactly
> the same but there are strong similarities. Ourselves in the 30s
> is one example. Hoover tried protecting the dollar then and that
> led to a deep depression. Conditions only started to improve when
> the dollar was devalued and inflationary policies implemented. What
> was true then, is still true today.
>
> We need to get the dollar down to something like fair value - a level
> at which we have balanced trade. That will give us exports, jobs
> and a chance to work our way out of these problems. You ask at what
> point the "destruction" of the dollar turns in to a bad thing. We
> are nowhere near it yet.
This means they hold not 30,000 tons but more like 8-15,000 tons of physical metal. All of this has been thoroughly documented by publicly available documents. To add further pressure the dollar is now becoming the carry trade currency. The unwinding of that massive central bank position will be extremely bullish for the monetary metals priced in their fiat coupons. As the value of their fiat currency coupons are valued like the common stock of nations and because of gold's rise in all major currencies it does not bode well for governments worldwide.
www.runtogold.com/2005.../
I only like it from the perspective its the damning evidence of our leadership, but I unfortunately am subject to it, being paid in the currency and living in the States. I might be confusing you with someone else but I thought I recall you living outside the States. If not, sorry for the mixup.
On Oct 07 09:40 AM Hot Richard wrote:
> They are not experts. They are simply on TV.
>
> Those of us who are shorting the US$ expect to be making plays thru
> 2012 (not that I'm predicting anything here). Schiff's books say
> it better than I can, but I also borrow advice from Rothbard, Mises,
> and Hayek.
>
> "...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"."
>
> Not sure what you mean due to the subjective nature of words. I
> celebrate the dollar destruction because I'm profiting mercilessly
> from it. One man's good thing is another man's bad thing.
At some point it stops being a glib game of ruin the dollar into something far more spectacular and punitive.
On Oct 07 10:06 AM relaplan1 wrote:
> Much of the stock market ralley and resilience is a result of investors
> preference for assets over $US. That will continue because nations
> with strong economies will increase interest rates while our Fed
> can not defend $US without stopping the recovery? dead in its tracks.
On Oct 07 10:48 AM a fat panda wrote:
> Mark, I have to laugh at the idea that CNBC woulid hold a guest
> accountable for the stupid cliches that they spout on CNBC. I would
> love it if they would, but they don't even hold their own pundits
> accountable. How many times did Cramer call the bottom?
>
> "You heard it here first. I am making the call. The market has
> bottomed." You not only heard it here first, but you heard it many
> times.
1. USA 1933
2. Britain 1990s
3. China today
To save you coming back saying "yeah, great prosperity in the 30s", take a look at the data for 30 to 33 and then afterwards (until the next mistakes were made in 37).
Sounds like, in your case, some research definitely is needed.
On Oct 07 11:00 AM TraderMark wrote:
> I am still trying to think of the country that devalued their currency
> to prosperity. Let me research that and get back to you - nevermind,
> no research necessary.
It's not so much about 'strengthening' the currency per se, it's more about letting the economy work its way out without the constant bailouts, stimulus, and everything else in between that promotes inflation of the currency. If you want a historical example that worked, take a look at America in 1920-21, there was a 'depression' that in the first year was as great as the Great Depression, but there were no bailouts, no price fixing, etc. Hoover was the Secretary of Commerce back then, he fought hard to implement the policies he later implemented as President (i.e. bailouts, etc). The result? The depression of 1920-21 lasted a year or so, the Great Depression lasted for over a decade. The difference? Government's policies to bailout, to stimulate and to inflate away the problem vs 'do nothing'. What FDR did was only to double down on Hoover's policies. The major difference for us today is that there is no gold link in the currency, so we can inflate without restraint.
It's funny how most people like to study the historical example of "failure" (a.k.a. the 30s), but disregards the many examples of "success" in history, where the depressions didn't last over a decade but mere a year or two (or three). The 30s was a failure because of the wrong policies, not because of right policies that just wasn't right enough (i.e. bailouts are good, but more is necessary, stimulus is good, but more is necessary, blah blah blah). People should stop studying the 30s and come the the conclusion that we should double down on those policies!
On Oct 07 07:21 AM chap08 wrote:
> You say that "deflation (in the real economy) is more the near term
> risk since the U.S. economy is so poor" and yet you, like so many
> others, are scared s**tless by a devaluation in the dollar. That's
> a dollar, by the way, which is still trading higher than it was before
> the crisis began.
>
> When are you going to stop talking about the "destruction of the
> dollar" and see sense? What other economies have got themselves out
> of a situation like ours by strengthening their currency? Answer:
> none. If you're going to say that there haven't been other economies
> with conditions like ours then you'd be wrong. Nothing is ever exactly
> the same but there are strong similarities. Ourselves in the 30s
> is one example. Hoover tried protecting the dollar then and that
> led to a deep depression. Conditions only started to improve when
> the dollar was devalued and inflationary policies implemented. What
> was true then, is still true today.
>
> We need to get the dollar down to something like fair value - a level
> at which we have balanced trade. That will give us exports, jobs
> and a chance to work our way out of these problems. You ask at what
> point the "destruction" of the dollar turns in to a bad thing. We
> are nowhere near it yet.
However, it does seem there's something secular, as opposed to cyclical, about the relative decline in the dollar, and the relative decline in US financial, political, and military influence. We've fallen back and other countries are catching up.
Money printing and crazy debt levels always end badly.
You are wrong to say that "What FDR did was only to double down on Hoover's policies". Dollar policy was one area where he did the complete opposite. Hoover raised interest rates and doubled tax rates to keep the dollar strong. FDR devalued from $20.67 to $35.
My comments about conditions improving after the dollar was devalued are totally true. Look up the data if you don't believe me.
As for 1921, the situation that we have now is very different in may ways: post war investment, flexible labor market, export demand etc. I believe it unlikely that our labor market will "clear" the deflation thru 20% plus wage reductions in a hurry and there is very little else around to drag us out of it today. Even if wages were cleared in that way, what would be the impact on a heavily indebted country? Whether it's loan defaults leading to bank failures, or "sticky" wages leading to unemployment, it is much more likely that we would go on the path of the 1930s than the path of 1921.
On Oct 07 01:23 PM a5fung wrote:
> You might want to review your history of the Great Depression, here's
> a good start - www.amazon.com/America....
>
>
> It's not so much about 'strengthening' the currency per se, it's
> more about letting the economy work its way out without the constant
> bailouts, stimulus, and everything else in between that promotes
> inflation of the currency. If you want a historical example that
> worked, take a look at America in 1920-21, there was a 'depression'
> that in the first year was as great as the Great Depression, but
> there were no bailouts, no price fixing, etc. Hoover was the Secretary
> of Commerce back then, he fought hard to implement the policies he
> later implemented as President (i.e. bailouts, etc). The result?
> The depression of 1920-21 lasted a year or so, the Great Depression
> lasted for over a decade. The difference? Government's policies to
> bailout, to stimulate and to inflate away the problem vs 'do nothing'.
> What FDR did was only to double down on Hoover's policies. The major
> difference for us today is that there is no gold link in the currency,
> so we can inflate without restraint.
>
> It's funny how most people like to study the historical example of
> "failure" (a.k.a. the 30s), but disregards the many examples of "success"
> in history, where the depressions didn't last over a decade but mere
> a year or two (or three). The 30s was a failure because of the wrong
> policies, not because of right policies that just wasn't right enough
> (i.e. bailouts are good, but more is necessary, stimulus is good,
> but more is necessary, blah blah blah). People should stop studying
> the 30s and come the the conclusion that we should double down on
> those policies!
>
> On Oct 07 07:21 AM chap08 wrote:
1993 to 1937 America is a standard of a policy working?
Yes there are MANY short term solutions - (i.e. print money) to paper ver messes in the near term. We are living through many of those examples the past few decades. Do thing A to hide over mess B, and generate 3-5 years of gains out of it. I dont think thats progress...because of the next set of problems the "solution" creates.
On Oct 07 01:01 PM chap08 wrote:
> I'll help you with some examples then:
>
> 1. USA 1933
> 2. Britain 1990s
> 3. China today
>
> To save you coming back saying "yeah, great prosperity in the 30s",
> take a look at the data for 30 to 33 and then afterwards (until the
> next mistakes were made in 37).
>
> Sounds like, in your case, some research definitely is needed. <br/>
On Oct 07 02:08 PM Dr. O wrote:
> The value of the dollar relative to other currencies and the prices
> of commodities tend to run in cycles. A currency tends to strengthen
> when the economy is strong and fiscal policy sound. And vice versa.
>
>
> However, it does seem there's something secular, as opposed to cyclical,
> about the relative decline in the dollar, and the relative decline
> in US financial, political, and military influence. We've fallen
> back and other countries are catching up.
>
> Money printing and crazy debt levels always end badly.
My sense is that faith is misguided. Better to invest in food and water and to learn how to live without "income."
Printing money and a weak dollar solves a lot of problems in DC. We're lucky they haven't done it sooner. Somewhere there is a piper who must be payed...and not with worthless US$.
On Oct 07 09:12 AM JAMES CARLINI wrote:
> Mad Hedge -
> Everyone says "check with the experts" but many experts have been
> proven wrong.
>
> I have to agree with Trader Mark's opening statement. A lot of the
> CBNC experts (and others) have been dead-on WRONG with their predictions,
> their assessments and their explanations of various issues.
>
> I remember one saying the sub-prime mortgage crisis was nothing to
> worry about because it only effected 1-2% of the market and the other
> 98% were paying their mortgages. At the same time, I was doing research
> and seeing that foreclosures were on the rise (and published some
> articles on it).
>
> Was he that far off or was he just trying to keep the heat off his
> Wall Street buddies?
>
> Other great examples -
> 1) after dot.com crash - buy Blue Chips buy Worldcom, ENRON, etc.
> (pre-Sarbanes-Oxley).
>
> 2) "Real estate is the fourth asset class and you should diversify
> - pick up a condo" (Cash, Equities, Bonds, & "Real Estate" pitch
> after Sarbanes-Oxley, blue chip crash)
>
> I have seen too many times that when someone is telling you - "you
> gotta buy now", it's because they want to sell, take profits and
> put it in the next "mover".
The benefits of currency devaluation are long term.
On Oct 07 03:39 PM TraderMark wrote:
> Oh vey, I am not talking 3 year time frames
>
> 1993 to 1937 America is a standard of a policy working?
>
> Yes there are MANY short term solutions - (i.e. print money) to paper
> ver messes in the near term. We are living through many of those
> examples the past few decades. Do thing A to hide over mess B, and
> generate 3-5 years of gains out of it. I dont think thats progress...because
> of the next set of problems the "solution" creates.
On Oct 07 10:06 AM relaplan1 wrote:
>our Fed can not defend $US without stopping the recovery? dead in its tracks.
Is that because the ONLY (illusion of) recovery in sight IS the debasement of the $?
I posit the opposite, that this course has proven the might of the dollar. I would assume that some balance between input costs/crude, and competitive exports is the only way back to prosperity (fuck me running, I sound like Kudblow). It would be a sliding scale based upon global capacity utilization. This outlook has kept me on a pretty solid path, and there is a paved road of kittens and puppies down to DXY 71. Down there all bets are off, something fast and furious will happen down there.
It's been fun so far...
source :
peterschiffchannel.blo...