The Gold Informant's  Instablog

The U.S. Department of the Treasury released a report yesterday, found here, that exposes more evidence that international interest in holding US treasuries is rapidly diminishing. Zero Hedge, reporting on this release, noted that Russia has consistently dumped US dollars every month for over a year.

China also dumped a great deal of US treasuries last year, down to $1100 billion in December, 2011, from $1173 billion, -6%, just five months earlier. Russia's holdings diminished from $151 billion to $88 billion, -42%, over the period of one year, ending December, 2011.

Though the significance may be negligible, India, Hong King, Mexico and Israel all reduced their exposure to US Treasures over the past year.

India $40.5 billion to $34.2 billion
Hong Kong $134.2 billion to $112 billion
Singapore $72.9 billion to $62.5 billion
Mexico $33.6 billion to $27.4 billion
Israel $20.6 billion to $15.8 billion

It's no surprise that the largest increases came from European countries, most notably the UK, France, Sweden and Spain. Canada and Japan's holdings increased significantly as well.

As western economies, and governments by implication, cling to one another in pursuit of sustainable support, Asiatic countries appear to be diminishing their exposure to the greenback. It would certainly be interesting to see the holdings of Arabic countries as well. However, they're merely included in a group labeled, "Oil Exporters," which includes too many regions to establish a pattern.

Of particular interest are China and Russia, and the implications of their moves. They've been very vocal in their desire for a standard trade currency independent of the dollar. At the same time, more countries appear to resent US intervention in the middle-east, seeking ways to trade without harming their US relations.

But how long will sovereign nations continue to dance to the dollar's tune? The answer, most likely, is tied to how long it is until managing their country without dollars becomes easier, and more profitable, than it is under the current system.

Unless the US changes its current foreign policy, it would seem that dollar sentiment will continue to wane. At what point will such action affect the value of the dollar for trade? That's a difficult question to answer. But, when it does, one of the strongest legs of this three legged stool will be yanked out from underneath it.

Another question that nags at the mind is in regard to where Russia and China are putting their dollars. They have to be buying something.

For your prosperity,
J. Keith Johnson

The Gold Informant

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

In the course of world events, from time to time there is a voice that rings out, bringing change. Sometimes this is a clarion call to freedom. At other times it's portends the rise of a tyrant. On occasion it's the harbinger of neutral change. And, quite often, the voice that rings out never sees the fruit of his warning.

I am not fan of Iran. It's not that I have anything against them, in particular. It's more than I don't appreciate their religious bigotry or the denigration of freedom that takes place on their shores. Of course, I don't appreciate the denigration of freedom that takes place on our shores either. And, perhaps, that's the point of today's article.

Iran is not telling the US what to do within her own borders. But that is precisely what the US is telling Iran. And, according to statements in The Tehran Times, what the US is doing today is simply par for the course.

For clarity, I'm not anti-war; and I'm not anti-government. There is a place and time for both. However, I am anti-tyrannical war. And I am equally anti-corrupt government. The current posturing in the Strait of Hormuz appears to incorporate both.

Iran is in pursuit of trading oil for assets, commodities and currencies other than the US dollar. Recent embargo efforts certainly aren't detracting them from such pursuits. If anything, it's only strengthening their resolve.

We've discussed the history of this in some detail. What it comes down to is that much of the dollar's strength is tied to its currency of choice in the trading of oil. If Iran, as the third largest oil producer in the world, successfully divorces itself from any dependence upon the dollar, there would most likely be a significant drop in the value of the dollar. Perhaps, even more devastating would be the perception of the dollar, and the US, in the eyes of the world. Consider this quote from Garry White's article in The Telegraph;

Is this the reason for tensions in the gulf? There have certainly been wars for lesser excuses. A falling dollar would obviously be destructive to a US economy already in turmoil. Would war with Iran, in an effort to protect the dollar's place in oil trade, be a viable economic solution?

The US points to nuclear issues as its reason for being in the region. Perhaps there is some legitimacy to such claims. But does the US really have the right to restrict another nation from such pursuits? Is this a moral, ethical, economic or political matter? Regardless of the truth, unless an amiable solution is worked out in the near future, we should expect oil prices to increase.

If the dollar's relationship to oil is not hampered, then the status quo will likely be met for the foreseeable future. However, if nations continue to pursue oil trade denominated in anything but dollars, we should expect the dollar to drop significantly in value.

Whether oil goes up or the dollar goes down, gold is likely to rise. Be prepared.

For your prosperity,
J. Keith Johnson

The Gold Informant

One of the most interesting and helpful tools in the arsenal of the stock analyst is the chart. In the right hands these wonderful instruments can identify patterns and often aid in predicting near term moves with uncanny precision. Some of the results are too technical for most of us to understand. But when someone who is particularly good with charts lowers the fruit a little, as they say, "A picture is worth a thousand words."

There are several resources at the hands of the analysts when they open their charting toolbox. As I look through the tools at my disposal I see various moving averages, Bollinger bands, price channel, Parabolic SAR, Linear Regression Line, various volume indicators, Stochastics, RSI, Chaikin's Volatility and so forth. In addition, I can use various types of charts, such as bar or pie. Any limitation is only in the imagination and ability of the analyst.

Something changes when we come to gold though. Quite often an article comes along that charts gold. The analyst then attempts to show the patterns for the yellow metal, from which he then in turn attempts to predict the future. And, he does so using the same tools, equations and reasoning that he uses for everything from Google to Microsoft to GM.

Such attempts are generally futile. Of course, charts are useful. We use them whenever we see an opportunity to help the reader understand. Also, there are indicators and careful analysis can bear much fruit in our efforts to understand movements in the precious metals' markets. And there are some who use indicators such as Elliot Wave Theory with a degree of success. But it soon becomes apparent that treating gold as though it were a stock is a recipe for disaster. We'll go over a few reasons why.

Financials - Have you ever had the opportunity to look at the books for gold's balance sheet? What are its financials? How about dividends? P/E ratios? Market cap? You get the point. Gold does not "perform." It cannot be examined in regard to its assets or balance sheets. And because its value is tied to its intrinsic nature, it is actually a balance sheet, in and of itself, of sorts. Gold sits. Companies perform.

Gold is a monetary asset. In this sense, there simply is nothing like it. Obviously no stock can claim such a title. There are several reasons for this. It is limited (intrinsic value). It is divisible. It is portable. It is durable. In light of the industrial use of every other metal we could possibly trade, nothing comes close to gold.

Nothing trades as widely as gold. While it is available for trade as an ETF (GLD), it's also traded as a currency on the FOREX. This brings it to markets that stocks aren't a part of and results in it being traded in ways that they never could. And the fact that silver is so prevalently used industrially puts a slight division between the yellow and white metals.

Gold is accepted everywhere in the world. You can take an ounce of gold from Peru to Uganda to Siberia and cash it in. Furthermore, other than government restrictions, you'll likely get close to the same amount of value for it regardless of your location.

Gold is not a typical investment. There is a very real sense in which gold is not an investment. It's certainly a position. And your purchasing power can obviously increase because you own gold. We've mentioned often that it's a great wealth preservation asset. In fact, it's likely the most reliable wealth preserving position ever.

It's not a stock. It's a currency, but not like any other currency on the planet because of its intrinsic value. For years those who embrace Austrian economics have said so. Gold bugs have been scoffed at. Today the Keynesians are being forced to admit that there was something to the Austrian argument. Gold is finally be recognized for what it is, money. Eventually the whole Keynesian system will be recognized for what it is.

For your prosperity,
J. Keith Johnson