AUTOREFRESH 
Is the Tail Wagging the Dog?
By tonysan || November 11, 2009 at 15:14 GMT
|| 11 comments || Add comment
Is the forex market setting a humongous “bear trap” for all the specs out there who are jumpin’ on the “band wagon” to sell the greenback; and even more near-sighted is the total lack of coverage by the business media to the spec gold bubble, which is rapidly developing …My question: Do you think the financial markets are buying the Dow and selling the USD because of this spec gold buying?
Tony I’ve been wondering about this as well.
I think equities are rising and the USD is depreciating today primarily because money is chasing risk and particularly risk with yield. Money is very cheap and there is plenty of it. It has to go somewhere and under the mattress isn’t the answer.
Not sure I believe gold is in a speculative bubble. Or, if it is, then we have a long way to go yet before it begins to “deflate”. I doubt it will “pop” the way I believe equities will. It is a symptom of our financial, economic and geopolitical environment.
1. Equities go up, gold goes up.
2. Equities go down, gold goes up.
3. Inflation increases, gold goes up.
4. Disinflation or deflation increases, gold goes up.
5. Political and trade tensions mount, gold goes up.
Gold is a confidence indicator — for it to head lower, we have to have confidence in stable financial and economic conditions and GROWTH over the long term. It is a hedge against anything that presents a threat to value. It has no yield per se. (Unless you’re in some mining equities.)
Having said all that, it is a market just like other markets, with its own nuances. I see it going to 1126. I get most of my ideas for further research by reading a few sites, one of which is here:
http://fxtradeinfocenter.oanda.com/commentary_and_analysis/ubsnews.shtml
Another is here:
http://www.oilngold.com/ong-focus/
Along with the usual stuff from the IMF, BIS, et al.
Do you have other good sources of info that are neutral?
J
I guess it depends on the length of your outlook. Why would it be a bubble if the US economy is in the toilet and will continue to be in the toilet through 2010 and into 2011? Where do investors put their money if the dollar is being faced with low interest for the foreseeable future? What if the Euro Zone learns to separate itself from the mistakes of the US financial system and begin raising interest rates well before the Fed?
Gold and for that matter any price can’t go up forever, but all of this uneasiness from all parts of the world puts Gold as the true stable currency.
When the currency is undermined by the “printing press” (most money these days is never actually printed), both stocks and gold rise in price. These valuations are a measure of currency devaluation as much as they indicate a speculative bubble, although speculation should not be discounted — the one follows the other.
The perfect storm for the USD:
1) The eventual trade of oil in Euros or other currencies
2) Better interest rates for non-USD currencies
3) Increasing diversification to other reserve currencies
How much of current USD value is because of the petro-dollar and the vested interest of sovereigns holding USD reserves and/or US treasuries?
Ironically, perhaps the most stimulative thing for the US economy would be a significant devaluation of the greenback. This would spur domestic manufacturing, and thus employment, which would increase tax revenues and reduce the spending deficit. At the same time, cheaper US-made goods, in concert with more expensive imports, would improve the balance of trade deficit.
A weak dollar is exactly what the US needs, painful as it may seem to some.
Bill
I agree Bill. If the dollar grinds slowly lower and US bond yields stay steady, it is a strong tailwind for the US economy. The key is not letting it get out of control to the extent that foreign central banks are unwilling to fund the deficit, a tricky bit of business, but one the government has pulled off so far…
In all cases, gold goes up!
… until it starts to go down. Certain FCB’s are accumulating presently but when their exports markets further dry up, to whom will they sell it to pour monies into their productive sectors of the economy or to put in place “stimulus” programs of their own?
Great point.
Ambrose on Barrick:
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/Barrick-shuts-hedge-book-as-world-gold-supply-runs-out.html
I wonder, what will Brown go down for in the annals of history?
All this from a ‘doctor’ who spent 10 years cobbling together a thesis on “The Labour Party and Political Change in Scotland 1918-29″.
You never know, perhaps a less hapless historian has already penned another entitled “The Brown Bottom 1999-2002″.
I have been meditating on gold extensively lately? What is the intrinsic value of gold? My best guess is that is less than manure since the latter is extensively used as eco fertilizer. Whereas gold is used for jewelry and some electronics but to a much less extent. Can someone brighten me up?
If I were a CB with rooms filled with gold that I use to warrant for part of my loans than all I have to do is buy a small quantity to increase by a huge number my reserve value. It’s a win – win right? That’s why gold keeps going up. As soon as gold will no longer be accepted as loan warranty it would probably drop to less than 100$/oz. But they will never let this happen right?
Gold is the best example of how to put a value on something that has none or very little (and how excessive liquidity pumped in the system by irresponsible central banks can quickly create bubles). It almost useless in the industry, not effecient as a currency, not practical if used to pay for goods, it doesn’t give you interests etc…Yet everyone wants it for the time being. It reminds me of a certain tech bubble. But timing is everything, so even big bears should be carefull going short. I simply don’t touch it.