What's Next for Gold and the Dollar? 20 comments
-
Font Size:
-
Print
- TweetThis
In our May issue of our newsletter we looked into the changing importance of and outlined our investment case for gold. At that time, we made the following forecasts:
- Trading within narrow range (USD 860-950) for Q2, 2009
- Move towards and eventually breach the USD 1,’000 mark in Q3/Q4, 2009
- Increased supply/demand shortfall
- Increased demand as inflation hedge
Now, about six months later, these forecasts have become reality
Half a year after we made these forecasts, we can tell that they were pretty accurate. As we are writing this report here in early October, Gold has not only broken the psychologically important USD 1,000 mark but has actually moved upwards to USD 1,050 already and continues to follow a strong upwards trend. In our previous reports we have mentioned several times that gold, although it is a non-interest bearing investment, is a very compelling investment case since its relative importance is increasing quickly. The main reasons for this are investors demand for an inflation hedge and as protection against another very severe crisis.
Also, in an attempt to diversify investment holdings, Asian investors and central banks are buying large quantities of the yellow metal. Considering the almost chronic supply shortage, we think there are several factors at play which should continue to drive the gold price towards USD 1,500 in coming months.
It goes without saying that part of the gold price advances were also caused by further weakness of the U.S. dollar. Is the greenback now finally finding some support at current levels? We have our doubts and continue to be bearish on the U.S. dollar for several reasons. Although we think that the risk for strong inflationary pressures have fallen somewhat, it is clear that the U.S. does not have too much interest in a strong currency. With the amount of government debt now at record levels, the last thing the U.S. wants is a strong currency.
Also, the U.S. dollar’s role as the world’s sole leading currency is coming to an end, and, although it will remain an important currency, its share of world currency reserves is going to fall further from here.The recent rumors that the greenback will be replaced as the “oil currency” gives clear evidence that the relative importance of the U.S. dollar is falling.
Although the current amount of government debt is almost mind blowing, we don’t think that it is a hopeless situation. Compared to the size of the U.S. economy it is still manageable but in our view drastic measures to correct the unpleasant situation need to be taken. These measures must include spending cuts and increased spending discipline as well as steps to promote real economic growth since it is unrealistic to hope that inflation and spending cuts alone will rebalance the deficit. Unfortunately the measures taken so far are targeted at either redistributing wealth, increase spending or at protecting the domestic economy.
Although probably relatively popular politically, these measures are counterproductive and will not help to improve the situation. We remain bearish on the U.S. dollar and expect another 5-10% decline in the next six months before it is possibly finding a new equilibrium price around 1.60 against the Euro.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 20 comments:
The world knows and is increasingly insistent in telegraphing via changes in the exchange rate of the dollar and real assets(esp, proto or substitute currencies such as oil and gold) that the only way the Parasitic economy of the US can grow is at the direct and terrible expense of the Productive economy. The world knows what many Americans still refuse to accept or fathom that the only way the Ruling Troika of WashDc, Wall St and MSM can increase is for the ordinary American to decrease.
The current Bosses of US politics, money and mass communications have already shorted the US because it is in their interest to do so. The world sees this plainly; the majority of Americans do not.
It is not that much of world wants to demote the dollar or degrade the global stature of the US or compress the wealth and job creating capacity of America as ends unto themselves...They do not; the sane part of the world knows that a strong dollar, a vibrant American economy and a powerful global presence by America are a gift...An asset to be monetized. It is the US Regime that wants to and is debasing the currency, the economy and the Nation.
The sane world, with no great enthusiam, is merely responding to the tragic fading of American exceptionalism and the willed termination of the American experiment.
Looking for the following to be major players going forward:
GLD SLV INTC...MarvinMBA
In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Peter Bernholz analyzes the 12 largest episodes of hyperinflations - all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures. By the accounts of the OMB we will be there this FY and next, dimming the outlook for the dollar.
And over the weekend John Mauldin, in addition to commenting on Peter Berholz's book, observed there is every likelihood our debt will exceed 100% of GDP by 2015 or sooner. This is a critical threshold at which interest payments and ongoing borrowing needs becomes so burdensome that the process become unsustainable unless taking place within the confines of high savings rate. Thus, the US is not an exception.
So we meet two critical devaluation thresholds........making it very likely the US dollar will continue its steady descent downwards even though there may be fright-based rallies here and there where safety is sought in an increasingly vulnerable sanctuary. Following the inverse path, gold must go up.
They too railed against the establishment. Not that I disagree, not at all, but these things do correct of their own accord. We're seeing some of that now just as happened in the late twenties. I wouldn't sweat the "Regime" stuff too much or they'll be putting you on the list.
en.wikipedia.org/wiki/...
On Oct 13 09:03 AM User 353732 wrote:
> The falling dollar and rising gold and oil are of course, manifestations
> of the same phenomenon: the vote of the discerning world on the behavior,
> policies and tropes of the Regime in the US.
Then as with Major Tom something went wrong. The Fed Chairman said not to worry "well contained". The New Century CEO retired 4 months before it was revealed that there were irregularities in the financials. The "Dumya" went on a spending spree on a War on weapons of mass deception and the creation of the Medicare prescription drug program. Taxes to pay for any of it ? Then we found out CIT & Washington Mutual & their ilk were shopping around their debt ratings. It turned out the ratings agencies were getting paid for their debt ratings. Uht oh! Finally we were told we had to spend a couple trillion dollars to bail out the likes of BOA so they could pay out bonuses in the millions to Merill Lynch employees who had made lots of money for a failed firm. They performed well so they were not to be punished by the failure of the firm.
In a Democracy it is not nice to pizz off the plebe cite. What we have now is the back lash of the American people voting themselves some of the largess. Indeed the whole mid-term election will swing on whether the S&P can get back to a 1250 range and stay there for a while. The bitter health care debate is not going to matter when voters go to the polls in 13 months. Instead it will be what they see inside those envelopes that they receive in July . Voters are now starting to open those quarterly 401-K and IRA statements and they are feeling more sanguine. A 1250 S&P means they will see loses in their investment portfolios instead of a total annihilation of lifetime savings.
The massive liquidity flood must continue on for that to happen. Americans are now intent on voting themselves largess. They are intent on extracting some thing more from the wealthy and the filthy rich. What they perceive now as a class of people who prospered at the expense of their life savings and children's college funds.
The people want what they want. They don't care about or even need to understand about asset inflation. The seniors with CD's did not lose their savings? But they are losing their ability to support themselves on 1.7% CD rates. They embrace the hope of a '70- 80s inflation and 17% CD rates. No one is going to be sold on the idea that the defined contribution retirement plan is going to replace Social Security anymore. We still find state legislatures defining usury as being 39%. Again if you allow the creditors to amass giant un-collectable balances there are going to continue to be failures.
The right in America failed miserably in their leadership when they had the people. The average guy on the street does not care about M-2, the value of the Yen, what some bureaucrat in China says, or what is going on with precious metals. His or Her perception is based on whether they think they are going to get a "Fair Deal" from the leadership of the country. For them Rush is as entertaining as Sienfeld. Very entertaining for less than ten minutes. For them it is now about more reality and less O'Rielly.
"In a democracy it is not nice to fool all of the people some of the times. The right sold America on their ability to manage their own wealth and life savings in Roths, IRAs and 401-K defined contribution pensions. It was a solution . It was the closest thing to Marx's Utopian idea of the proletariat owning the the means of production."
Clever, but I assume you mean the closest thing to ACTUALLY owning the means of production, i.e., GM, Chrysler, Citi, etc. I was following you until you threw in Rush and O'Reilly. The reality is the US can't pay for the checks it is kiting today. So is your point the citizen is hanging himself, or being led to the gallows by his elected officials?
Timothy Geithner’s closest aides indited for public fraud and corrption and insider trading Goldman Sachs Group Inc., Citigroup Inc., etc.
Way to go Tim, get all your good buddies in there to really screw the little guy!
talk about being "put on a list" and to criticize this administration in a vaccum as if they managed to create this mess in 9 months alone through profligate spending, is simply disingenous as any fair minded person would have to conclude.
On Oct 13 12:27 PM Vuke wrote:
> Trope??? For goodness sake, User, this is getting into some heavy
> literary stuff. Historical as well. Your post is strongly reminiscent
> of the "Wobblies" of the early twenties.
>
> They too railed against the establishment. Not that I disagree, not
> at all, but these things do correct of their own accord. We're seeing
> some of that now just as happened in the late twenties. I wouldn't
> sweat the "Regime" stuff too much or they'll be putting you on the
> list.
> en.wikipedia.org/wiki/...
>
> On Oct 13 09:03 AM User 353732 wrote:
On Oct 13 09:03 AM User 353732 wrote:
> The falling dollar and rising gold and oil are of course, manifestations
> of the same phenomenon: the vote of the discerning world on the behavior,
> policies and tropes of the Regime in the US.
> The world knows and is increasingly insistent in telegraphing via
> changes in the exchange rate of the dollar and real assets(esp, proto
> or substitute currencies such as oil and gold) that the only way
> the Parasitic economy of the US can grow is at the direct and terrible
> expense of the Productive economy. The world knows what many Americans
> still refuse to accept or fathom that the only way the Ruling Troika
> of WashDc, Wall St and MSM can increase is for the ordinary American
> to decrease.
>
> The current Bosses of US politics, money and mass communications
> have already shorted the US because it is in their interest to do
> so. The world sees this plainly; the majority of Americans do not.
>
>
> It is not that much of world wants to demote the dollar or degrade
> the global stature of the US or compress the wealth and job creating
> capacity of America as ends unto themselves...They do not; the sane
> part of the world knows that a strong dollar, a vibrant American
> economy and a powerful global presence by America are a gift...An
> asset to be monetized. It is the US Regime that wants to and is debasing
> the currency, the economy and the Nation.
>
> The sane world, with no great enthusiam, is merely responding to
> the tragic fading of American exceptionalism and the willed termination
> of the American experiment.
"The inflation outlook from the monetary and fiscal standpoint looks truly deflationary, yet some believe that dollar weakness will reverse this circumstance and create inflation. This is unlikely. First, our imports are about 13% of GDP, and even if the dollar were to halve in value, the price of imported goods would not only have to compete with U.S. producers, but also their price adjustment would have to offset the other 87% of factors included in the pricing indices. Second, unlike the 1930's a 50% decline in the dollar would be difficult to engineer."
I'm not sure that I buy the small effect of oil imports on inflation. First of all, Bernanke has stated numerous times that the dollar will be the sacrificial lamb.
Secondly, just 18 months ago, we had a doubling of oil prices which gave us a 5.9% CPI. And obviously, the CPI is always a few points lower than actual inflation.
Lowering the dollar will have an effect on oil prices and those prices will riple throughout the economy, even in this depressed environment.
On Oct 14 10:24 AM jr007 wrote:
> This country will survive in spite of the nay saying and obsturctionism
> of the GOP. The time has come for the obscenely weathy to share the
> wealth and give back a little to the good of the country.. Sorry
> to say.
> I think the Obama "regime" bashing is unfair. …and to criticize this administration
> in a vaccum … is simply disingenous as any fair minded
> person would have to conclude.
“Unfair” Please don’t confuse a democratically controlled congresses’ funding of a military action prior to our current executive’s arrival as a purely republican idea. Truth be told, both parties have plenty of guilt to shoulder for the current malaise, and not all of which is fully attributed to our presence in that troubled area of the globe. They seem to have a different approach at paying off their respective handlers however, and that’s where the timing occurs for sovereign individuals to reallocate their personal assets to protect, produce and provide for themselves and their loved ones. That seems to me to be the point of this article.
Currency is already and will continue to collapse as long as the Federal Reserve and fractional reserve banking continues to be aloud.
The Rothschilds of London and Berlin,Lazard Brothers of Paris,Kuhn Loeb Co., and Warburgs of Germany, and Rockefeller families of New York are and continue to be pleased with the control they have over you and your shares and stocks because they own all of them.
Accept This As The Truth The Whole Truth & Nothing But The Truth
You people still don't get it.
The Central banks along with the Federal Reserve, Fractional reserve banking procedures, and absence of the Gold standard are the spring boards of happiness for these cartel counterfeiters to rake the entire world over the coals and out of existence.
Federal Reserve Notes are near extinction. Rightfully so, because they(FRN) are worthless paper not soft enough for biological purposes and have no value without Gold standard backing it.
The rest of the world is starting to realize the USD (Federal Reserve Note) is the ROOT CAUSE OF PRESENT GLOBAL CHAOS.
Use the Gold Standard and get rid of Federal Reserve Notes and start having the U.S Government Treasury print United States Notes backed by gold reserves only producing allotments as needed to balance goods and services.
Abolish the Federal Reserve Act of 1913,Fractional Reserve Banking, the IRS, Ben Bernanke and the entire Federal Reserve System.
Then you will be able to understand and open your mind and eyes and move on to a better economic level of survival.
In other words remove 96 years of bend over vaseline jobs from the Federal Reserve System.
Just a thought ............. Have a good day,week,month,year and next decade.
Stepbear7
As it always has been in history, so it always shall be. Hope and change never made it rain.
The USA is headed for a very long period of low growth caused by the actions of the current administration: business stifling regulation, crippling deficits, cap and trade, and health care. All of this will hurt the US economy in the long run.
Then we will get what Nancy Pelosi is already publicly calling for: European style VAT (value-added-tax). She said to level the playing field with Europe. It is just so unfair to the socialist liberals that we pay lower taxes and have a higher standard of living than Europeans. They want to increase our taxes and reduce the American standard of living by making all goods and services cost more with the VAT. Note that in Europe most people rent (do not own a home) and use public transportation (do not own a car). The VAT will be the final stake in the heart of the US economy. But it is the only way the socialist liberals can get all the tax money they want without upsetting voters with a huge increase in taxes on the middle class.
The VAT is how all citizens share their wealth with the wealthy politicians in power.
On Oct 14 09:32 AM diogeron wrote:
> I think the Obama "regime" bashing is unfair. Face it, he was handed
> a huge deficit by the former administration who decided it was wise
> to launch a war against Iraq, a nation that had nothing to do with
> Al-Queda or 9-11. Moreover, this war was fought "off-budget" with
> supplementals, and to pass a Medicare Prescription Drug plan, which
> massively increased the deficit along with the tax cuts which benefited
> mainly the wealthy. Those are facts. In contrast, most of the deficit
> spending this administration has done has been targeted at stimulating
> the economy and trying to fix the mess left him with the banks and
> GSEs. If, in the next four years, this administration doesn't move
> toward deficit reduction if and when the economy turns around, then
> I will join the chorus of critics. Yet to
> talk about being "put on a list" and to criticize this administration
> in a vaccum as if they managed to create this mess in 9 months alone
> through profligate spending, is simply disingenous as any fair minded
> person would have to conclude.
Long term, the other non-US countries (including China) are in worse shape than the USA. Yes, China, which will crash and burn soon.
On Oct 14 01:17 PM Stepbear7 wrote:
> The only external sources the US is borrowing from is the scam cartel
> Federal Reserve System. We've already seen what kind of ride this
> country has had since the Federal Reserve Act(December 23, 1913)
> has been around.
> Currency is already and will continue to collapse as long as the
> Federal Reserve and fractional reserve banking continues to be aloud.
>
> The Rothschilds of London and Berlin,Lazard Brothers of Paris,Kuhn
> Loeb Co., and Warburgs of Germany, and Rockefeller families of New
> York are and continue to be pleased with the control they have over
> you and your shares and stocks because they own all of them.
>
> Accept This As The Truth The Whole Truth & Nothing But The
> Truth
>
>
> You people still don't get it.
> The Central banks along with the Federal Reserve, Fractional reserve
> banking procedures, and absence of the Gold standard are the spring
> boards of happiness for these cartel counterfeiters to rake the entire
> world over the coals and out of existence.
> Federal Reserve Notes are near extinction. Rightfully so, because
> they(seekingalpha.com/symbo...) are worthless paper not
> soft enough for biological purposes and have no value without Gold
> standard backing it.
> The rest of the world is starting to realize the USD (Federal Reserve
> Note) is the ROOT CAUSE OF PRESENT GLOBAL CHAOS.
> Use the Gold Standard and get rid of Federal Reserve Notes and start
> having the U.S Government Treasury print United States Notes backed
> by gold reserves only producing allotments as needed to balance
> goods and services.
>
> Abolish the Federal Reserve Act of 1913,Fractional Reserve Banking,
> the IRS, Ben Bernanke and the entire Federal Reserve System.
> Then you will be able to understand and open your mind and eyes and
> move on to a better economic level of survival.
> In other words remove 96 years of bend over vaseline jobs from the
> Federal Reserve System.
> Just a thought ............. Have a good day,week,month,year and
> next decade.
>
>
> Stepbear7
The answer!! Buy what ever you can and sell it at a profit. Put your un-needed money in silver or good land. Better silver, as it can be hidden in coffee cans. Hard to tax that. A lot of gold and silver is being used to electroplate gobs and gobs of items; jewelry and industrial products, and will never be recycled. Also, look for a shortage in copper, tin, and nickel. China will have an abundance.Any that forward looking people can salt away will buy that proverbial loaf of bread. When not if, the dollar becomes worthless.
Education and health care: The answer to everything . When politicians don't like to face the true issues, they invent some phony ones. Well, well, folks, may I say! welcome to Johnsons' "great scociety".
Me! I'm gonna salt away all this BS floating around and use it for organic fertilizer. I'll make a fortune. Think I'll start with this.
Ole Cottontop strikes again