NewsGroup
The election &
gold: It was interesting to see the post-election
Asia Times article (linked below) which speculated that the Democratic
victory might open the way for devaluation of the dollar. The
Bush administration, with the tacit cooperation of the Federal
Reserve, has been trying to drive the dollar lower for years.
The problem is not the lack of will in this regard. The problem
is the lack of success. Every attempt by American policy makers
to drive the dollar lower is met with equally aggressive policies
on the part of our trading partners to make their currency even
cheaper. With the Democratic Party adding its policy initiatives
to the mix, it might be enough to convince investors worldwide
that dollar devaluation will become a reality. No one really
knows the full ramifications if the American political establishment
were to get its way and successfully inaugurate a downward dollar
spiral. As described in the articles below, we there is a new
dynamic in Washington which we should take into consideration.
All things considered, 2007 should prove to be an interesting
year for gold and the dollar. With gold already being driven
by record worldwide physical demand, a dollar crisis on top of
it could push gold past its all time high of $875 sometime next
year.
Democrats to tackle the dollar/Jephraim P Gundzik/Asia Times - 11/18/06
Bernanke unlikely to push inflation target/Krishna Guha/Financial Times - 11/15/06
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What's next for gold: Says Gregg Greenberg of theStreet.com:
"Like Dorothy on her way to Oz, investors have closely been
following the yellow brick road of late. Even after its recent
price drop from more than $700 an ounce in early May to its recent
levels near $585, gold is still up more than 30% since last year,
and some experts think the precious metal could still move 
much higher. How much higher? Well, even
the wizard himself would have a difficult time answering that
question precisely. One place he may tell you to look for clues,
however, is at the declining dollar. Traditionally, the demise
of the dollar is what sends investors scurrying for an asset
class that will retain its value even in the face of rampant
inflation."
The first phase of the gold
bull market (2002-2006)
was driven principally by the supply side -- or better
put reductions on the supply side. Mine supply is static.
Forward hedging -- once a huge driver for supply -- has transformed
to covering, a quantum change in gold market dynamics. The central
banks failed in 2006 to meet even the modest 500 tonne supply
goal to which they agreed in 2004. In fact, there is an argument
building that the central banks as a sector could very well become
net buyers of gold as this bull market unfolds over the
next few years. The next phase of this bull market will be principally
demand driven. In fact, there has been a number of reports
lately, as mentioned above, of international physical demand
running at record levels -- an important element to the gold
market unlikely to change anytime soon.
Dollar breakdown to ignite gold market/Jason Hamlin/Yahoo Finance - 11/17/06
China will corner gold market; here's
why/Larry Edelson/Money
& Markets - 11/16/06
Editor's Note: Gregg Greenberg alludes to the Wizard
of Oz. Was L. Frank Baum's masterpiece a gold-based allegory?
Visit our Gilded Opinion page linked below for an interesting
read (by professor Quentin Taylor) with some interesting applications
to today's gold market. Our Gilded Opinion page, like the best
private library, is a collection of the very best essays and
articles on the gold market that we have been able to collect
since the inception of USAGOLD in 1997. The guiding criteria
for admittance to the collection is that the piece have a timeless
quality. We thought you might enjoy spending some time in our
library. Here's the key. The Wizard of Oz essay is the first
selection:
USAGOLD Gilded Opinion
Remember to bookmark
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Rubin, Volcker say
investors may avoid buying dollars: "Robert
E. Rubin, Treasury secretary under President Bill Clinton, and
former Federal Reserve Chairman Paul Volcker said foreign investors
probably won't keep increasing dollar holdings, raising the risk
of a slump in the currency. Failure by the U.S. government to
shrink its budget deficit may spook the central banks, hedge
funds and others who have been buying Treasury notes, Rubin said.
Volcker said the U.S. borrowing requirements raise the risk of
a 'crisis' in the dollar as soon as the next two and a half years."
Dollar crisis within two and a half
years/Kevin Carmichael/Bloomberg
- 11/15/06
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Action alert -
time to tune-up your portfolio? Are you
ready for a potential dollar crisis? With warnings like the one
alluded to above by financial luminaries Paul Volcker and Robert
Rubin, maybe you should be. In this case, it's not so much what
was said, but who said it. Given the almost mythic stature
of the two, their concerns need to be heeded a little bit more
closely than warnings from others.
If you don't own gold, you certainly aren't prepared. Don't
expect a diversification between stocks and bonds, for example,
to get the job done for you. Those are both dollar investments
and would likely bear the brunt of a dollar crisis. Gold, on
the other hand, is a stand alone asset relieved of the burden
carried by dollar-denominated assets. That, in fact, through
the modern era of fiat money has always been its chief allure.
If you do own gold, you might want to factor in the possibility
of currency and gold market controls should a dollar crisis turn
into a full-fledged breakdown. Investors with those concerns
usually hedge their overall gold goldings with pre-1933 gold
coins. At the moment, these items are priced very favorably with
premiums on some items less than similarly sized contemporary
bullion coins. Now would be a particulalry good time to execute
a trade of contemporary bullion coins for the pre-1933 items.
(Shown here.)
Note: We are beginning to see some tightness in the
pre-1933 gold coin market which we hope is temporary. If it isn't,
you can expect premiums to rise and availability could become
problematic. If you have been thinking of switching over, now
might be a good time to get the task completed.
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Friedman, Bernanke
& the money supply controversy:
With the passing of Dr.
Milton Friedman this past week, we have lost a great friend of
individual liberty and free markets. Friedman didn't get it right
as far as gold is concerned, but he got most of the rest of it
right. The socialists never liked him -- which elevated him into
the upper reaches of the economics profession in my book.
I always thought his idea of
a money supply that grew relative to the population had some
merit. To that he coupled a central bank that acted more like
a currency board (another interesting idea). I was surprised
when he publicly advocated selling the U.S. Treasury gold hoard.
That did not seem to be in character. Of course his greatest
contribution was the book on monetary policy with Anna Schwarz.
The great champion of monetary analysis, I wonder what Friedman
thought about the scrapping of M3 and Bernanke's decision not
to use money supply as a guide to monetary policy. . .the exact
opposite of what he advocated most of his public life.
Which leads to a question:
If Friedman represented the apotheosis of monetary discipline,
where does that put Ben Bernanke who advocates targeting the
inflation number -- a statistic, as columnist John Crudele pointed
out in the article linked below, that is largely a politicized
fiction?
Trichet, Bernanke differ on money supply/Ralph Atkins/Financial Times - 11/10/06
Milton Friedman Financial Times' biography
by Samuel Brittan -
11/16/06
How you may have kinda saved $392.10/John Crudele/NewYork Post - 11/16/06
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Short & Sweet
Pimco, the huge California investment
fund, has quadrupled its commodity holdings saying the risk to
supplies hasn't disappeared..................The dollar dropped
at the end of last week on rumors that another big hedge fund
was in trouble. Seems that an unnamed fund is losing on some
massive wrong way bets on the oil price..................Gary
Dorsch, the editor for Global Trends Magazine, says "Saudi princes, who control 70% of the
stock market in Riyadh have been bailing out of local stocks
and moving funds into gold since early October. The Saudi elite
are worried that Democrats could hasten an American withdrawal
from Iraq."...................Do you get the feeling that
oil prices are about to bottom?........... Who said: "How
do you get tough on your banker? We have to hope every morning
that Beijing and other nations will continue to buy our debt
instruments. The trade deficits with China give the US a weakened
hand in global trade and economic diplomacy"? Don't look
now but the speaker is none other than Senator Hillary Clinton.
Seems she's widening her frame of reference these days.........................Alan
Greenspan suggested in a speech recently that central banks are
shifting from the dollar to the euro.............New York art
auctioneers are having a field day. More than $1.3 billion in
paintings in the past two weeks -- a record. A Modigiani painting,
for example, which sold for $5 million 10 years ago went for
$31 million -- not a bad rate of return.......................The
fabled tech analyst Aden Sister say that the correction in gold
is over and that that a "renewed rise has begun." They
see gold potentially reaching "a topside near$850,"
and that "The gold price would then be wide open to rise
significantly in the years ahead, and that's the big picture." .....................Citigroup's John
Hill reports: "We remain positive on gold, based on a mix
of supply/demand and macro/monetary catalysts. Gold has weathered
a full-fledged late-summer 'burst bubble' speculative exodus
without significant damage, and appears to be establishing a
new floor in the $580600 per ounce range. . . Citigroup
Investment Research gold forecasts for 2007/08 are $700/750 per
ounce. We expect gold to move above 650/oz in the next few months
due to the interplay between investment demand and fabrication.
Within this framework, we would not be surprised to see a test
of the old highs of $850 per ounce.". . . . . .As reported
at Bill Murphy's site -- LeMetropoleCafe.com: "UBS published
an enormous Quarterly survey of commodities today. On gold it
makes the remarkable statement: "[S]ince the start of September
we have noted extremely strong buying from India and to a lesser
extent other important Asian markets. According to our senior
gold trader, he cannot remember a period of such sustained strong
physical demand."
