Monday, October 5, 2009
US Dollar Games Continue
Big, big fundamental news affecting the U.S. Dollar has come out. Is anyone who cares and follows such things surprised? They shouldn't be. But before we get to that, check out Gold. NEW ALL TIME NOMINAL HIGHS. This party is not even close to being over and what is fundamentally problematic for the Dollar is fundamentally bullish for Gold at the same time.
I was anticipating this move after Gold's recent strength and this is why I have been buying junior Gold miners (even some of the stinkers) because turkeys in the Gold sector are about to fly. Hold onto your Gold and Gold stock positions tightly. The confirmed breakout to new highs is unlikely to end with a whimper and a multi-month rally (with some normal corrections along the way) is now almost guaranteed.
Anyhoo, the Dollar info is yet another nuclear warhead being dropped on the future of the United States and its currency. The article link is here. You absolutely, positively, must read the entire article, especially if you're American.
This is essentially an act of economic warfare. And some of those declaring war are our previous allies, including Saudi Arabia, Japan and France. China, Russia and Brazil should not be a surprise. Even India is supporting the move away from the U.S. Dollar.
What is going to replace the Dollar in international oil trade? A basket of currencies INCLUDING GOLD. For anyone who still thinks Gold is a commodity like oil, you have now received confirmation that you were wrong. Dead wrong. Gold is being re-introduced into the world monetary system right in front of our eyes! This is what has put a recent floor under the Gold price and explains why China told their citizens to buy precious metals. Insiders have had this information for some times and have been using their U.S. Dollars to purchase Gold and other currencies like the Yen in anticipation of this announcement. I guarantee that China and other nations mentioned in this article will come out with updated government Gold holding levels that will take many by surprise.
All I can say is: wow! I knew it was coming - hell, anyone who can take off the "don't worry, be happy" blinders did, but to see a re-introduction of Gold into the international monetary system so soon is a relief. It restores a small sense of confidence in humanity (even though I know it shouldn't...). For make no mistake about it, the level of this ongoing economic bust, which is far from over, was largely due to the dynamics of a Ponzi paper money pyramid scheme gone putrid. The financial market bull was raging and would have been spectacular even on a Gold standard, but it would have starved itself sooner under a stricter monetary system.
So, where do we go from here? Well $1200/oz. is a conservative target in the short term, but now the writing is not just on the wall, it's leaping off the page. America's allies are abandoning the current international monetary system and not asking permission. This is horribly bearish long-term for the U.S. Dollar. This is why I am bullish Gold and yet still a [current] deflationist. Gold will outperform other commodities in the current weak economic environment and will outperform the U.S. Dollar. Gold will continue to outperform general stocks, corporate bonds and real estate. In other words, the purchasing power of Gold will continue to rise, one of the hallmarks of a deflationary collapse. The concept of deflation in a fiat system gets complicated but investing in physical Gold (not paper ETFs) held outside the system is as easy as can be.
The Dow to Gold ratio will reach 2 and may well go below 1 this cycle. Once this happens, I will no longer be a raging Gold bull (though the Gold stock bull may just be getting into its explosive phase at this time!). Until then, all y'all haters can remain stock bugs and I'll happily wear the Gold bug badge with pride. When the bottom in real estate and general stocks is finally close to being in (we're not even close yet), then I'll sell my Gold to the CNBC crowd, as they will finally get on board once the Gold bull market is just about done. When the mainstream financial commentators finally start pumping Gold (buying it, not selling it), I'll begin to start selling my Gold and Gold stocks and buying high dividend-yield blue chip general stocks and real estate for pennies on the Golden dollar (i.e. "pennies on the dollar" when priced in Gold). Wash. Rinse. Repeat.
But until that time comes a few (several?) years from now, Gold and Gold stocks are the best place to park your savings. Period. Gold bulls, enjoy the day! Americans, today is not a happy day from a societal point of view and confirms that we are about to endure the worst of both worlds: a deflationary collapse in asset prices and the banking system coupled with a currency crisis. Gee, that ought to be fun. Perhaps I do need to look into buying a gun one of these days...
NOTE: Official denials have been flying off the presses regarding the validity of the article linked to above. "Secret talks" do not morph into actions quickly and are easy to deny. I am not saying that the monetary system will change overnight and I have no way of knowing whether or not the story is valid (I am a retail investor without government connections), but the warnings and hints keep coming. The Gold price is telling us that changes are coming. Ignore its warning at your own risk.