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U.S. Dollar at a Crossroads – Is Gold’s Rise Poised to End?

The US dollar has passed the event horizon. Gold will eventually go to the moon.

Incurious Gold Manipulation Theorists

So what if the funds are way long? The banks are way short, which has surely been the risky trade for a decade, whether deflation or inflation is in the cards. Maybe funds are long because they have to live and die on their own, whereas banks just get bailed out if they mess up--assuming that they're even acting on their own, rather than as central bank proxies.

It's screamingly obvious that central banks have the means, motive, and opportunity to try and manage the gold market. I've been long gold for a decade even though I generally agree with GATA's analysis. It hasn't always been easy, but I know that intervention eventually fails, sometimes spectacularly. And sure enough, the dyke has kept on springing new leaks.

Gold Is Not in a Bull Market

Nadler cites four factors for a bull market in gold but says they "are not satisfied by the current picture in gold—not even remotely." Well, let's take a look.

1. "Demand that far outstrips supply." Almost all of the gold mined throughout history is still available for sale, so supply isn't a problem. Demand sets the price. Demand is greater than annual production, so the price must rise to get holders to sell. Central banks were sellers for years but have now turned into net buyers, something that the GFMS survey deliberately ignored because they considered it an aberration!

2. "A falling stock market...Stocks have been up 50%+ this year." This is cherry-picking the timeframe. Stocks are well off their highs, and it's even worse if you measure their performance in terms of gold. (Note that gold bears always cherry-pick 1980/$875 as a starting point, never 1970/$35).

3. "An actual, tangible inflation level, and the threat of much higher inflation on the horizon." Sure, if you believe government statistics and have faith in central banks, then move along, there's nothing to see here. But those who think a little more critically see the resurrection of asset inflation and grave threats on the horizon.

4. " An increase in the price of gold across all major currencies." Gold isn't at an all-time high in every brand of fiat, but it's up significantly in each.

These four factors are satisfied enough to have a bull market in gold, though hardly a mania. Nadler, however, says it's bear market in the dollar, not a bull market in gold. I sort of agree, except that it's a bear market in _all_ brands of fiat. This looks unlikely to change. The big question is therefore, when will gold leave the Wall of Worry phase and enter the Mania phase?

Roubini Hates Gold: Is He Wrong Again?

Wherever you think gold is headed, to say that it's in a bubble is ridiculous. Gold--and gold mining stocks, which would be flying if gold was in a bubble--have been in a bull market for about 8 years now, but are currently in the "Wall of Worry" stage. The "Mania" stage, in which the chart for any equity with the word "gold" in it starts to look like a rhino horn, has yet to appear.

Note that Roubini doesn't rule out gold going much higher; he just doesn't think it'll happen in the next few years. But timing the market is a bitch, so I'm holding a core position of bullion and mining stocks because the fundamentals tell me I'm right and to therefore sit tight.

Price of Gold in Dollars (Record High), Euros (-10%) and Yen (-10%)

"This indicates that the strength [in gold] is solely a function of a weaker dollar rather than any real pickup demand."

Duh. The big picture is clearly a bull market when measured against any currency. What are you guys, day traders?

Auditing the Fed Is Economic Suicide

"The free market understands that auditing the fed is a very dangerous line to cross."

The Fed has nothing to do with a free market. It's a state enforced monopoly that has continuously debased the currency since it was founded. Furthermore, Ron Paul is a libertarian who would like to see the federal government at a fraction of its current size. He wouldn't have proposed his bill if it created the risk you assume.

Government spending is out of control and the tab will have to be paid. The only ways to pay are through (a) higher taxes, which would be political suicide at this point; (b) borrowing, which just postpones the taxes unless a default occurs; (c) inflation, which is dressed up in euphemisms like "providing liquidity" or "quantitative easing", and which is inevitable whether the Fed is audited or not.

Dollar Higher, Driven by Risk Aversion

Risk aversion? What hackneyed claptrap! Try intervention to make a boatload of Treasuries look more attractive.

Austrian School of Economics Is on the Rise

Check the history. It's called the Austrian School because it arose from Carl Menger and Eugene von Bohm-Bawerk (in Austria) in the latter half of the 19th century. It predates the Chicago School, Ayn Rand, and Ronald Reagan, none of whom were adherents. More recent proponents included Mises, Hayek, and Rothbard. The tenets indeed remain sound and make far more sense than those of other schools of economic thinking, even those that also reach free-market conclusions.

On Jul 12 10:34 AM [e-mail] wrote:

> The so-called "Austrian School of Economics" has little new to offer,
> at least in terms of theory. In fact, it is an outgrowth of the Arron
> Director and Walter Friedman founders of the "Chicago School of Economics,"
> which served as the theoretical justification for Ronald Reagan's
> economic views (with a strong influence of Ann Rand 's libertarian
> philosophy. (Recall that President Reagan campaigned for smaller
> government, smaller government spending, and for the economy to rest
> primarily on free market principles.) In short, the "Austrian School"
> tenets, as I understand them, are older ideas wrapped in new paper.
> The tenets remain sound.

Income Tax, Not Wealth Tax: That's Another Story

If a wealth tax were instituted, I'd vote with my feet.

Employment: Minimum Wage, Maximum Stupidity

Al-USA, you're quite right about crony capitalism, but adding crony labor to the mix only makes it worse.

On Jul 12 04:58 AM Al-USA wrote:

> We don't have a "free market" for capitalists, so why should there
> be one for labor? Crony capitalism is the rule in USA, since the
> corrupt USA capitalist elites are afraid of the "free market" and
> the competition that entails they are all over Washington with their
> lobbying efforts trying to influence, many times successfully, legislation
> that will favor them, to the detriment of free markets.

No One Saw This Economic Crisis Coming?

Another one who saw it coming was Jim Sinclair (jsmineset.com). He was one of the few talking about the risk from over-the-counter derivatives bubble, which greatly magnified the problems when the housing bubble burst.

What's Interesting About the World's 50 Safest Banks

No, you first pay tax where you live. If you also pay in the other jurisdiction (e.g. because you're a US citizen or green card holder, or because some dividends were withheld in the other country), you get a foreign tax credit. Double taxation does not occur to any significant degree.

On Jul 07 10:39 AM a. palmer jr. wrote:

> I would assume that if you own any stock from Canada, banks or otherwise,
> that you pay income taxes twice, Canadian and US.

2009 Mid Year Outlook: Expect Deflation and an Oil Price Drop

Inflation originally meant an increase in the money supply. You're going along with the majority who coopt the term.

WW2 in itself didn't end the depression, but it forced people to save because there wasn't much to buy. When the war ended, these savings helped to kickstart the economy.

I think you're right that all of this will cause houses to be thought of as places to live, not as investments.

The big thing you're missing is derivatives. The size of all the bad debt pales in comparison to the size of derivatives. The attention has been on CDS's, but the value of interest rate and FX derivatives is far higher than that of credit derivatives. When you have interest rates around 0% and routine FX changes of over 1% a day, which would have caused great consternation in the past, you have to think that a lot of those derivatives are under stress. If they start to default, they will be the wellsprings of bailouts (money printing) that will make what has happened thus far seem like a picnic.

Gold: Metal or Stocks

The metal is for insurance, for wealth preservation. It's a boring asset in the long run, but there are times when it does very well, and such a time is on the horizon.

The shares give leverage to the gold price, especially those of high cost producers, where a $100 increase in the gold price can turn losses into earnings. It's a good observation that the mining stocks also follow the general market when gold is doing nothing much.

Gold Price Manipulation: So What?

From a narrow standpoint, you may be right. From a broader standpoint, the problem is that if the manipulation ends in a blow-up, a lot of people will get hurt. Taxpayers for one, because the banks who are short and have to cover en masse will get bailed out, particularly if they're acting as central bank proxies. Force majeur will be declared on the commodity exchanges, so those who thought they could take delivery of bullion will receive paper instead. All of this will further erode confidence in what is already a shaky system. It therefore matters a great deal if the gold price is being manipulated.