Asbytec

What Is Going On With Gold?

I can't believe I like what Allah had to say...LOL

Trace is right about gold, too. It has stood the test of time. No arguments. Get some.

Bruce, you are exactly right. I've argued Bernanke is trying to unstick the credit markets by flooding it with dollars and removing the logs. Absolutely. Any better ideas? Gold bugs, speak up...

Velocity will be out of control, thank you for saying that. Interest rates don't create money so much as provide lubrication to the wheels. But, the Fed, despite pop fiction believe to the contrary, is nto stupid. they will fight it when it shows. By then, the MZM supply may have shifted to bank reserves. Oh, yea, inflation threat is real.

I realize I may have misspoken about the yuan. Contracts to China are settled in yuan, so demand for the yuan is already there. It's the printing of new yuan and buying dollars that have filled China's reserves.

What Is Going On With Gold?

Andrew, I agree with your assessment of the AU.

Paul is correct about perceptions of the US economy recovering first and the strength of the dollar. But, there is more to it and it's deflation related.

SW, that's interesting (good subject for further research.) But, can you imagine the strength of the yaun if this were true? It appears to be against China's interests. With China's huge exports, to settle in yuan means a lot of yuan will be repatriated. China cannot inflate it's way out of that appreciation. And if it tried, would you invest in yuan based assets?

Look, if the Gulf states developed their own regional currency, fine. It will suffer such appreciation too and oil prices will go through the roof. I know they'd love that, but... Regional currencies have inherent weaknesses in that they are dependent on the performance of member states. The euro has this weakness, too.

Furthermore, the euro will never displace the dollar, either. EU demographics are all wrong and the EZ could not sustain the resulting huge trade deficits and currency appreciation. Nope, the dollar is poised to remain the world's reserve currency. It's the only one with the strength to do so, despite this correction.

As for the blog above stating the Fed is trading paper for MBS's, I don't know if this is much of a problem...backing dollars in real assets rather than promises. Okay, yes, the assets are worth less and falling in value. But, at some time in the future, the housing market will recover. So, balancing the Fed's books with worthless securities today may prove beneficial in a few years.

I still feel most gold bugs tend to not get the point (I may be wrong) the dollars created from decades of excesses are actually disappearing as deleveraging progresses. The question is, how far will this go? This will help determine the value of a dollar in years to come. The proverbial dam has sprung a leak and Bernanke has his fire hose trying to refill the reservoir. He can't keep up, especially with banks hoarding cash.

Now, I am not saying don't by gold. It's a great investment. But, what I am saying is take into account the dynamics of the dollar. We have to put our love for gold and dollars...and country...aside, as one blogger said, and face reality.

Ah, there goes my credit rating. Supporting the dollar always knocks off a few points in "gold" posts...LOL

What Is Going On With Gold?

Again, reiterating Carl's blog. It takes a good long time to deleverage from 350% of GDP. I believe we're in the long and painful process of doing just that. In the end, there will be less debt (money.) We can start over building debt (money to buy homes, cars, gas, etc.), and hopefully at a slower, more sustainable pace.

China will just have to make do on single digit growth in the coming decades. And you guys holding a lot of gold will do just fine. So will the dollar...once the trash is taken out. But, it will be a bumpy ride. Anyone following the volatility in the currency markets? Jeeez, I feel like giving up.

What Is Going On With Gold?

Ok, while it's true all fiat currencies fail, it's also (mostly) true all currencies are fiat. If and when they fail, they will do so at different rates and different reasons. When and if this happens, my bet is the dollar will come out on top.

I think Carl is right on. Yes, gold is a good investment. But, we may see a prolonged period of deflation and deleveraging. Dollars are disappearing. They have to in order to reboot our banking system. Anyone doubt it's highly over leveraged? Anyone thing reserve banking can support infinite debt? Nope. As in a related article on SA, recessions are necessary. This crisis is necessary.

The dollar has been slowly depreciating against the euro for a decade, due in large part because we created so many of them.This is unwinding. Now, what better happen, and I am hopeful will happen, is the fed and the Government will take this opportunity to get a handle on money creation. In the coming decade or so, we will not have the excessive easy money of the Greenspan years.

But, reigning in the money supply will take time to come about. It will probably happen after deflation eases and inflation kicks in. Yes, we may see a period of inflation, maybe hyper inflation. But, when? This is the question. I am betting Bernanke will fight inflation as aggressively and as creatively as he induced it.

A fiat currency earns it strength through government enacting laws stating it will be used as a medium of exchange. One can go to jail for not accepting a dollar in commerce within the US. Externally, the dollar has value not because it is backed by anything, but faith the government will not alter it's value significantly. Ok, argue the Fed is inflating like mad men. Yes, they are. But, so are other nations inflating. And dollars leveraged are disappearing. So, the net change in value depends on supply, which has both diminished and grown.

I've had my windscreen washed at traffic lights. And China is not going to declare war on the US or dump it's reserves. Did you get that info from a gold bug blog? China is a lot of things, but it's not stupid. I wish Jim Cramer well on his investments there...LOL. Think the dollar is weak, try the yuan. Now, there is a conspiracy to debase a currency. Look, China is already suffering millions of lay offs and reversed flow from the urban job market. And all this from a US recession.

User is correct. Beggar thy neighbor has begun. It almost has to.

Yes, there are some major differences between Japan and the US going into QE. They complicate the results we can expect.

By all means, buy gold and hold into it. I say, buy the actual metal, not promises of future delivery. But, why does it seem every gold bug can find reasons to thwart the dollar and give examples of investors scrambling back to the cliff? I guess we find ways rationalize what we want to believe. (also guilty as charged.) It gives us hope and something to talk about over dinner...

What Is Going On With Gold?

Nice thoughts. I am a dollar bull, though get disappointed and on the edge of my nerves sometimes. Ah, who doesn't?

I am sure coming out of this crisis will be beneficial for the dollar, despite the threat of inflation. We'll have tighter credit, leaner spending habits, and some controls over money creation.