More On Rising Dollar, Declining Gold

The price of gold has rebounded as the financial crisis drags on but the process of consolidating the weak with the strong is well advanced. How many more big names are left to implode and fuel further gains in the price of gold? The supply is dwindling it would seem.

Meanwhile, as the Financial Times of London reports, jewelry demand, comprising about 70% of gold end use, is tumbling. High prices and slowing economies are causing jewelry buyers to cut back. Also, scrap supplies are surging in response to higher prices.

Gold bugs anticipate galloping inflation from monetization of the government’s debt load, which is to be substantially increased by the requirement to rescue the financial sector. Admittedly, it’s possible the Fed may resort to the printing press but the forces of de-leveraging are way out front now, spreading ever stronger deflationary impulses. Expansion in the money supply won’t accelerate inflation when the economy is moving away from full employment.

Gold bugs anticipate a tumble in the U.S. dollar. Yet, government borrowing is destined to escalate because, as mentioned, of the imperative to rescue the financial sector; the higher borrowing in turn creates upward pressures on interest rates and, in turn, draws capital into the U.S. Besides, other currencies are not looking all that attractive either as the world economy sinks further into recession.

Comments

[Gaucho]

What you are forgetting is that inflation is nearly 14% already. See shadow stats.com
Additionally the banks with the FEDs help have been driving the price of gold down so that the mom and pops will be forced to pay for the inflation tax. This cannot go on forever.

2008 Oct 01 06:27 PM

[phdinsuntanning]

mv=pq,
more m, given v/q constant, means only more p,
we all know q is collapsing in the US
because of (g - t) caused too much (m - x)
as m-x was funded by b*
now the foreign holders of b wants a lot more i
you can get domestic b with a low i
but as p is going to the moon,
your i/p will go to hell if you not fix
g - t = 0 with a very positive x-m

2008 Oct 01 06:40 PM

[otbricki]

I don't believe inflation right now is anywhere near 14%. Housing prices down 20%, oil and nat gas plunging. Wages flat. Just doesn't make sense.

2008 Oct 01 07:33 PM

[garuche]

If Gold is so plenty full, why are premiums sky rocketing? Dealers in precious metals are currently paying over their normal retail prices to obtain anything physical. One ounce gold Krugerrands for example where selling for $5-$10 over spot about a month ago. Dealer bid prices are now + 40 and rising. ( See Coininfo.com Dealer bid Prices)
GOT GOLD? Check with your local coin shop or precious metal dealers. You will find there's " Nothing available"

2008 Oct 01 08:37 PM

[coldcut]

Agree. I ordered some gold from Kitco in August and am still waiting for delivery. It only said "booked" on their website. And if you call, the phone rings forever and wait time is long. Something is definitely up.

2008 Oct 01 09:45 PM

[whidbey]

You are likely correct: gold is offset by the dollar rise, but only relative to the Euro and Pound etc., and the presses will not be needed in a deflation, as jobs decline faster than you can count. So what is the upshot? It not falling gold but a deflationary cycle that will extend dollars purchasing power, but price US exports out of the world market. We can not win for losing. I think the ice decade where things are in limbo and we grow wary of the sameness of life.

2008 Oct 01 09:48 PM

[rcwill]

With roughly 7 trillion in deposits and only 4.5 trillion insured by FDIC, people are scrambling to find a quick safe haven for 2.5 trillion. Since most people are not gold savvy the obvious place to try and preserve this amount of wealth is not to find a hundred banks and buy CD's but to simply buy treasuries. This drives the dollar up and gold down. If the FDIC limit is raised to 250k it may curtail the rush into treasuries and the rise of the dollar. This would be gold positive me thinks.

2008 Oct 02 01:21 AM

[Neal Vanderstelt]

it all depends of course. i think their will alot of fluctuations and even changes of directions. nothing is for certain.

2008 Oct 02 01:47 AM

[Cesato]

Read between lines in the latest deveploments of the financial markets, I'm a Gold bug very long term but fundamentals and market intervention are changing the picture of the Gold price short term. As far as I'm concerned I'm selling all my Gold and then short a position in paper Gold today at 9:00 EDT and will double my short same time tomorrow and leave it until December. Reasons? With a strengthening USD, recent data showing that inflation is coming under control and the prospect that long term consequences of recent Government's measures on the money supply will not be seen inmediately plus the need for raising cash from pretty much every single investment house will have a profund effect in the Gold price. The overall picture doesn't seem to support Gold prices at this level, I'll probably place my stops very tight but I'm not going long anytime soon again before Christmas 2008. Think about data, the technical picture, resilience to break 919 (it was attacked 6 times in the last 2 weeks) despite funds buying and physical demand and the fact that those US banks shorting or selling Gold since July (it has a reason behind it) whether it is transparent or not, it is a fact. Remember? Buy the rumor, Sell the fact, well we all bought the rumor, I'm selling the fact!!

2008 Oct 02 05:49 AM

[Mr.G]

will the dollar rise as the same time as gold -I think yes and that is the more likely probability that the US dollar although stronger than foreign currency will still be seen as weak and gold prices will slowly climb to reflect it -

2008 Oct 02 06:00 AM

[Cesato]

Come on you can't have the felling of a weak USD, it either is weak or is not and that drives Gold prices together with the expectacion for inflation both are not Gold supportive at this time the other 2 drivers, Hedge Fundsspeculation and physical demand are showing signs of exhaustation at the moment. Chinese's New Year is the only strong physical demand left seasonally speaking. What will drive Gold up next year is the huge increase in money supply and the second-round effect in inflation but if you buy Gold now, you may buying a very sad Chritsmas time unless you buy all cash then you can wait a couple of years to realize a decent profit.

2008 Oct 02 06:28 AM

[SW Richmond]

Paulson's money will, among other things, be used to make whole the gold shorts on the Crimex, so they can short some more.

The flood of dollars coming from the Fed will be mopped up with a flood of oil coming from SPR and Saudis. Dollar strength encourages people to buy Treasuries.

Short term, it will work. Long term, not at all.

2008 Oct 02 08:02 AM

[silverwink]

"scrap supplies are surging" quote your source !!!!

2008 Oct 02 09:02 AM

[sieraromero]

The dealers i work with either can't get silver for physical possesion or charging several dollars above spot to get it. Tell me that this market is not rigged and that prices are not being manipulated. This is not a free market, based on technicals or fundimentals. Why isn't the press reporting on the precious metals situation?

2008 Oct 02 10:47 AM

[Smarty_Pants]

I can personally vouch for surging scrap supplies. A friend of mine buys scrap gold. He has been buying huge amounts from the public over the last several months.

However, this past week he was told by the smelter he sells to that new government regulations will require an additional two day delay before the smelter can send him money for the gold he sends.

Maybe gold smelters are suspected financial terrorists?

Anyway, LOTS of people are discovering unwanted or broken jewelry and selling it to raise cash. While this does add gold to 'the system', it is still in the form of broken jewelry and scrap. It takes quite a bit of time and effort to turn this stuff into physical supply like coins or bars.

The flip side is that most of the sellers need the extra cash to make ends meet, showing that things aren't all rosy in general.

2008 Oct 02 10:58 AM

[User 30121]

To: coldcut

Sorry to read you have been "taken" by Kitco. Posts here routinely inform readers to stay away from them and others that tell you up front you will get your stuff when they get around to it--maybe--. In addition, the wait is long, you can't cancel, because you will get hit with fees. They are, well, unscrupulous is one word. Others cant be printed here. The best source for gold and silver is your local shops, shows, and ebay. Just be careful that you are getting GENUINE stuff. Good luck!

2008 Oct 02 11:24 AM

[Carl Spackler]

Hey goldbugs! Just ask yourself - when was the last time real estate, stocks, and all real asset prices were falling while inflation was growing. There has never been falling real asset prices while inflation was rising. Falling real prices is caused by deflation - it is economics 101. Sure glad Mom and Dad paid for my economics degree - it will save me a bundle when the gold market collapses. Gold right now is held up by fear, not inflation. When the fear subsides, so will gold.

2008 Oct 02 12:00 PM

[secmaven]

The never ending series of bailouts will set up Federal deficits at a trillion in the next FY and a geometric increase thereafter. This debt will have to be monetized by the Fed. There are no buyers for this quantity of Treasury bonds without further reducing the pool of available credit. Gold is a historic store of wealth recognized in all cultures for all time. Compare this fact to a spiraling out of control production of money by the Fed and how can gold not come out a winner?

2008 Oct 02 01:49 PM

[Keer-eh Khar]

So what is this so-called "article" saying? It looks like a midnight nightmare transcribed -- Hellucinatory.

2008 Oct 02 02:00 PM

[Cesato]

Well as promised yesterday, I sold at 9:00 EDT and short at the very same level, stops went at breakeven. Second leg tomorrow 9:00 EDT. Gold at 700 by December, I'm looking at you, then I'm going to buy you old for 700 the as soon Inflation starts to pickup and stagnation takes a toll on what is left of the World's economy.

2008 Oct 02 07:06 PM