While the Portugal auction went with the yield actually falling in the secondary market, which is a strong result for a country that was projected to be on its deathbed, German GDP in the fourth quarter grew at the fastest pace in two decades… And, while the euro rallied on these two news items, the judge hearing the lawsuit by the GATA regarding price manipulation asked for the gold records that the Fed was trying desperately to keep from the public…which could end up being HUGE
But for the time being, to remain analytical and keeping it simple—to the news on gold— the outlook for gold and precious metals, the single one asset class that seems to continually out-perform all others year after year—has a double edged sword.
An appropriate simile is like one of those good news bad news jokes, you know the ones—your doctor phoned with some good news and some bad news. The good news is they will be naming a new incurable disease after you. The good news is that gold is rising in value; the bad news is—well nearly everything else about the economy.
The different mindsets about gold in Asia and South America, see gold as the protector of wealth, where in the West, we view gold as something akin to the grim reaper.
Reading hundreds of articles, talking to top International analysts, power breakers, gold investors…to be more clear on what our government, our banks and financial media tell us about money, which is what most of us will accept as our financial mindset or financial reality, I found, that if anyone doubts the power of government economic policy to shape mass economic reality, just look at how we have changed our attitudes towards debt, saving and economic value over the past 40 years. Our current debt based mindset began to form the day the US dollar, the worlds reserve currency, was removed from its final international peg with gold in 1971.
Inflation
So, while this year Mr. Bernanke’s $600 billion of quantitative easing debased the value of the $840 billion in US treasuries the Chinese hold, it also requires them to debase the Yuan which is pegged to the dollar. This begins to cause inflation, which is showing up in rising food prices. Vegetable prices, for example, have risen 20 percent in the past year. This past weekend, Middle East and South Asian’s are rioting, burning markets over the food inflation in those regions. As inflation rises currencies depreciate in value that creates higher universal debt, which means gold price will continue to rise.
In the meanwhile, from mid-week on, last week, until last night, the Chinese renminbi lost ground to the dollar (albeit in small moves)… But still, it was strange to see, given the renminbi’s moves for the last six years… All that changed last week, with the renminbi’s record-sized move stronger versus the dollar… The thing that amuses me about this move and its timing is that China’s Premier, Hu, will be visiting the US this week… So, no wonder the renminbi is back to gaining versus the dollar… The Chinese moved it lower versus the dollar for a few days, so that it could make news with a record-sized move higher versus the dollar! The boys and girls in Washington might not see this for what it is, but I do!
And… One more thing on gold… It seems that with gold falling below $1,400, the demand for physical gold is more than what the suppliers can mint! Here’s another story from the GATA website…
“Demand for gold bullion has been unrelenting since gold’s price dropped below $1,400 an ounce. We cannot meet all the enquiries that we are getting,” said Nigel Moffatt, Treasurer of the Perth Mint, one of the world’s largest gold refiners and distributors. Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars.
All that demand, very little supply, and the price of gold remains below $1,400? I find that to be simply amazing! Don’t you? I mean, this falls under the great line “There’s no such thing as a ‘shortage,’ the item is simply in need of a price adjustment”…
Then there was this… Think China’s inflation is their problem alone? Guess again…
When garment buyers from New York show up next month at China’s annual trade shows to bargain over next autumn’s fashions, many will face sticker-shock. Though many Chinese are earning higher salaries, the government has become worried that rising inflation could lead to social unrest. “They’re going to go home with 35 percent less product than for the same dollars as last year,” particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. “The consumer will definitely see the price rise.”
Inflation has arrived in China as it coming to the US. This means the demand for gold will be rising high! And after last week’s release of crucial financial statistics by China’s central bank, few economists expect Beijing officials to be able to tame rising prices any time soon. Right now, the so-called “experts” believe that China’s inflation won’t be that big of a deal here in the US… I say there could not be a bigger fallacy.
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