An inflow of U.S. dollars into the system wreaked havoc on higher-yielding currencies which became more attractive to foreign investors today. Brazil took the step last Friday of essentially trying to buy up dollars to eliminate some pressure on the real, but Thursday’s move is much more aggressive. Although countries like Brazil will have to hike a lot to really make a dent in the inflation picture, the move was pressuring gold. China might follow Brazil’s lead, although its path is a bit more shaky. As was disclosed Wednesday, China’s economy grew 10.3% in 2010 (9.8% in the fourth quarter), and consumer prices rose 4.6% in December vs. a year ago. All told, prices jumped 3.3% last year.
The inflation reading of 4.6% is slightly lower than the 5.1% increase in November, and it might take some pressure off the country to raise interest rates. But with a real interest rate of negative 1.85%, China may eventually decide it has no choice but to tighten its monetary policy further.
China hiked its interest rate by 25 basis points on Dec. 27 and it increased the amount of money banks must hold in their reserves on Friday, the seventh time in the past year. Currently the one-year deposit rate is 2.75%.
A negative real interest rate environment is great for gold buyers in that country as an investment into gold winds up being worth more.
The Currency Truth Can Be Found In Gold
While the turmoil in the economy since 2008 continues to worsen, gold has been representing a better indicator of whether the U.S. dollar is weak or strong. The price of gold doubled from around $700 in September 2007 to around almost $1,400 today. While the U.S. dollar price of gold used to be inverse of the U.S. Dollar Index, today, it is breaking free.
True state of currency today is priced in gold. Don’t look to the U.S. Dollar Index for answers.
Dollar Index Conceals the Real Weakness in U.S. Dollars
The matter of floating paper currencies, and the inability to measure dollar vs. gold properly in the current madness, is confusing. However one thing is very clear in viewing the long term financial market, if that piece of paper is the reserve asset of the entire financial world, we are all in very serious trouble, and are about to learn all about inflation in a most unsatisfactory manner. Congress might as well raise the national debt ceiling to $50 trillion, but they’ll not cure their own disease. The unions and lobbyists will see to it. But, until that time comes, at least when the water starts coming onto the deck of the boat, what will the premium to buy gold and silver be? Today one can buy gold and silver at low premiums. They are the life preserver needed to keep one’s portfolio afloat.
Commentators on CNBC and elsewhere talk about the U.S. dollar being weak or strong, and reference the U.S. Dollar Index being up or down as their source. But to really understand what the U.S. Dollar Index actually represents, in reality, it is simply a camouflage meant to conceal the real weakness of the U.S. dollar.
CNBC keeps the U.S. Dollar Index figures hidden from public view. They don’t include it as part of their scrolling data that one sees at the top of their daily broadcasts. And, CNBC does have the exchange ratios of the euro, yen and pound, but they don’t allow viewers to keep tabs on the U.S. Dollar Index itself.
It is so camouflaged, that, if the U.S. dollar, euro, yen and pound would be on a sinking ship yet anyone watching the U.S. Dollar Index as an indicator wouldn’t know the ship is sinking until the water started coming over the edges of the deck. It’s a covert act simile to Reed E. Slatkin, co-founder of Earth Link.com, who took $593 million from investors in one of the biggest Ponzi schemes in history–while investors’ bank statements showed their investments were safe and gaining interest.
To hold onto wealth today is to prepare for the sinking of the U.S. dollar ship. Today the waves are splashing on the deck. The wise are putting on their gold and silver life preservers and preparing to jump in the lifeboat when the time comes.
There will be some out there who will try to refute this analysis by pointing to the fact the price of gold languished for 20 years from 1980 to the year 2000. During this time period, there was no competition to the U.S. dollar. The dollar was king and equities were the place to be.
In the year 2000, the euro, after a down first year, offered up for the first time an alternative to the U.S. dollar. Subsequently, just as the euro and other currencies gained steam, ETFs became available where the average investor had easier access to gold than going to their local gold dealer. But many investors still choose to own physical gold and silver themselves and as a consequence, the U.S. Mint is working overtime to keep up with unprecedented demand.
Investors who understand what’s really going on in the economy have been buying gold and silver. They know that Federal Reserve Notes have 40 short years of existence without gold backing. They know that changing the amount of FDIC coverage from $100,000 to $250,000 doesn’t mean their bank account is any more secure from their bank failing. They know congress will keep voting to raise the debt limit without making any real progress on cutting back. They have no choice but to raise it. They know the system is unsustainable in its present form, and no Gene will rescue them.
In conclusion, despite gold’s 10-year rally and mass media coverage, most investors and average people don’t have a clue about gold. In fact, they might be more apt to sell gold at high prices rather than buy it. Legendary investor Jim Rogers said recently at an event with 300 major international money managers that 76% of them had never owned gold.
No comments:
Post a Comment