The Dollar Back to Rally Mode
Not so fast, said the U.S. dollar today as it rose strongly once again from the ashes. Gold could not withstand the assault, and?the possibility of an extended?price disconnect quickly faded into fantasyland. While silver once again bore the brunt of the decline when it comes to monetary metals,?if we look at the other white precious metals,?silver is actually holding up the “best”. Specifically, platinum has broken $1,000 and looks soon?to trade at par with gold?after?rising as much as 125% higher earlier this year. And poor palladium is getting absolutely destroyed as it falls under $200, reaching a nearly 70% loss from?the peak just a few months ago. An equivalent decline in silver would have it trading around $7.
Here is a reader question:
If $/USA is equivalent to stock/company, why would the dollar be rising when our country is so mismanaged, spends more than it makes, borrows from everyone, dilutes its dollars by creating more?
And my answer:
The dollar is rising because there is still an impression in the global marketplace that the U.S. Treasury market is the ultimate safe haven. You need dollars to buy U.S. Treasuries.?Why are the global markets thinking this way? If we look at the USA as all the assets in the USA denominated in dollars (stocks, bonds, other investments, real estate, intangible assets, military capability, etc.), then we can see that even with bad debts and all, the USA still dwarfs the next largest group of assets denominated by currency?(being the Euro). In a deflationary scenario, which is what the market is currently looking at, there is safety in size, diversification and longevity (the Euro has never been tested by a true crisis). You also need dollars to pay off debts. And ironically, the more debts you have, the more dollars you need, and the more demand there might be for the dollar. Moreover,?if you think House and Senate Republicans and Democrats are far apart on how to deal with this crisis, just wait until?we see how the Europeans deal with their version of it (the last one resulted in World War II).?Meanwhile the Japanese and their Yen have their own problems, and nobody in their right mind would trust the currency of a nation (already) run by dictators (China). Thus, the U.S. dollar, and more specifically the U.S. Treasury market,?is currently being viewed as?a lessor?of?most evils. These things will all work themselves out in due course (to the benefit of gold, and silver) but in the short to medium term the above considerations are dominant.
Found this gem the other day and wanted to share it with others.
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.
The average age of the world’s greatest civilizations has been two hundred years. These nations have progressed through this sequence. From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance, from abundance to complacency; from complacency to apathy, from apathy to dependence, from dependence back into bondage.”
Scottish historian Alexander Frasier Tytler saw all this coming centuries ago. These are the words of a man born in 1747 — 29 years before America was born.
Have just ordered 2 x 1kg Silver bars. Will pay 20% above spot due to production costs. The silver is supplied from the Rand Refinery in granular form and carbon moulds are used. These moulds “do not last” and that I’m informed is the main reason for the 20% premium. Also enquired about shortage due to demand and according to mint there is no shortage. Probably use them as door stops as the criminals are after weapons, vehicles, booze,food,cellphones, TV’s and other electronic devices which can swopped for Rand coupons………hey! you can’t call the stuff money. That’s an insult to money,no? TU NE CEDE MALIS
While I cannot comment on the logic of the quotation, I can state that it is incorrectly attributed to Tytler. The above amalgamation of quotes as far as I know was never written by any one person.
Regarding the Dollar rally: has anyone considered the possiblity that this rally may be fuelled by emergency sales of assets in non-$ countries the revenues of which are then converted back to $$? This would mean that this rally is not caused by “save haven” considerations and is not really bullish for the $ and may not last very long. The seller of such assets
could be banks, fonts, and international cooperations. Is the US government selling assets in foreign countries?
When looking at SLV and GLD in particular this also may work the other way round. When a foreigner in an non-$ country buys GLD shares she/he has to convert her/his currency into $$ first which also may help the $ for a short while but can not be considered a bullish factor.
How many million $$ does it take to raise the $ e.g. from 78.00 to 79.00 (against other major currencies) in one day? Any comments?
I’m tryng to make sense of the dollar rally as well - here are my thoughts so far. Foreign investors seeing world equities fall, are concerned and pull their money out of foreign exchanges, and move to safe haven status of US treasuries - which require dollar purchases, and cause interest rates on US treasuries to move down as well.
Safe haven buying in silver/gold right now around the world is difficult because retail supplies have dried up, and retail outlets for silver/gold have all but disappeared since the last boom (79/80).
SLV/GLD buying may contribute - but that market is relatively small compared to the other markets.
THE GOLD and SILVER EXPLOSION are coming. Whatever reason we attribute to the DOLLAR RALLY is meaningless. It is likened to figuring out why a CHICKEN STILL RUNS around with its HEAD CUT OFF.
JIM SINCLAIR has made a CRYSTAL CLEAR POINT….just on MONDAY the FED pumped over $600 BILLION in the markets. And in the past several weeks about $1.5 TRILLION. This 700 BILLION DOLLAR BAILOUT is CHUMP CHANGE. It’s almost a JOKE…..but the JOKE is on the AMERICAN PUBLIC.
Right now we have people moving down EXTERS PRYAMID getting into T-Bills and US Bonds. Many WEALTHY are buying GOLD and SILVER BULLION. The problem with a LARGER NUMBER of people is that the VOLATILITY of GOLD is too much for a person who wants to dump money in a short term instrument. If they put let’s say a couple Million CLAMS into a SAFE HAVEN, they rather put it into a T-BILL that might not give them much of a RETURN….but at least they willl get their FULL MONEY BACK. IF they invested the same money in gold….there is no GUARANTEE that they can get the same PRICE PER OUNCE when they sell let’s say weeks ore months later. It could be $20-50 lower.
Of course, these folks are looking in short term aspects. If they realized that the FINANCIAL SYSTEM is imploding and there is no SOLUTION, but a continuted DECLINE and IMPLOSION…they would STAY IN GOLD.
But most still think this is TEMPORARY. As time goes by, and the T-BILLS become WORTHLESS as a STORE OF VALUE (as the US GOVT will not be able to PAY ITS DEBTS)……GOLD and SILVER PRICES will EXPLODE due to the fact there is SO LITTLE BULLION and ETF SHARES available for the MASSES.
Thinking AHEAD of the CURVE is difficult….because most WAIT UNTIL it is too LATE. We will see $2000-5000 GOLD and $100-250 SILVER….just a matter of time, patience, and the printing press
Another thought (slightly off-topic) and thus another comment: Do other readers here also recognize that the PMs always seem to be pushed down when an end of a month or quarter is reached and the pressure decreases thereafter (yesterday = 09/30!)?
When this really is an observable pattern I conclude that somebody has to show some good numbers in his books when an accounting period terminates. Buy before the end of a month/quarter?
“It is likened to figuring out why a CHICKEN STILL RUNS around with its HEAD CUT OFF.”
LOL Great analogy. Let’s take it further, the chicken body is the USA and the chicken head, laying on the ground, is the USD.
The USD is burnt toast and will show it’s wothlessness in very short order. It will come so fast as to shock all, this year.
This is not a status quo situation, it is an end game play-out. That is why I maintain Gold will hit $2000 and Silver $100 in 2008.
SRSRocco, you say that there are a limited number of ETF shares. Is that true? In the past, when the ETF nears it’s limit of available shares, it simply amends the charter and expands the number of shares available.
I think at this point, we are waiting for industrial silver to go into shortage as more and more demand from the small retail market and the ETF demand overtakes the industrial users and drives the price up.
While I think that the bullion banks have been doing their best to drive the price of silver and gold down, their efforts can only go so far before demand for delivery begins to force them to cease. Watch out if Comex places further restrictions on deliveries and only allows settlement in cash. That will drive the arbs away from Comex and into SLV. While the limitations on taking delivery of baskets in SLV are limited, it can be done and I don’t think they can change it. At that point, SLV will trade at a premium to NAV (determined by the London fix - another paper market).
After studying the SLV prospectus, I see no reason that SLV cannot begin to trade closer and closer to physical prices if a true shortage of industrial silver developes.
What I don’t understand is why someone isn’t taking delivery of baskets from SLV and taking them to a mint for retail stamping and making a HUGE profit.
Maybe this is occurring and the physical market is so small, that we just don’t see the metal coming out of the ETFs.
I’d like to add one more comment to all the good thoughts above regarding the dollar rally. The Euro is in trouble. People are now afraid to park money there as they can’t support their banks and economies with liquidity like the Fed can. Nobody does it like the Fed huh?
Anyway the Euro was the undollar but not so much anymore. The whole EU system could come under pressure from this crisis and it may not have the ability to survive. So the $ is the only place to go unless one has discovered the PM. And like was said before once people realize this is not a short term thing they will pile into PM. Not to mention the Chinese, Gulf States and Japanese who are frozen in their tracks with their huge dollar reserves.
T Rob….we agree on the BIG PICTURE. Concerning the STAMPEDE into the ETF’s…..I said there will not be enough shares for the LARGE NUMBERS of people. Sure, the SLV can buy more silver and increase shares….but T Rob, we are talking a mere PITTANCE compared to the VOLUME of shares in the “SOON TO BE WORTHLESS STOCKS”, which are going to be in the BILLIONS.
Even if the SLV increased its shares by a FACTOR of 2 this is still SMALL FRY compared to the AMOUNT OF PAPER SHARES of WORTHLESS STOCKS out there in LA-LA LAND. As the PANICKED investors STAMPEDE out of worthless stocks and into GOLD and SILVER, there will not be enough shares to go around….thus here lies the RUB of EXPLODING PRICES.
But I will say this…..if SILVER INVESTORS have lost some WEIGHT due to the fact that the VOLATILITY has been OVERWHELMING, they better start doing some SITUPS and get that GUT IN SHAPE. Because….I will say….as the price of SILVER HEADS above $20 on its way to $50…..we are going to not only see $1.00 plus moves in a day….but POSSIBLY $5 and then $10 moves in a DAY when silver hits $100+….but that will be QUITE FINE WITH ME….as those who bought in the low single digits and even in the teens….will have smiles all the way to the BANK….no….sorry not BANK…..but on the way to the YACHT.
Just received a hot tip that we may see banking holidays as early as next week. This is why I have been saying have cash and food at home to buffer your family thru these situations.
Worldwide money always looks for the best home it can find. Right now it is the US$. But, since ALL the currencies in the world are inflating, it will continually change to whichever one looks best.
The US$ will keep it’s value RELATIVE TO OTHER CURRENCIES, but will tank relative to “real things” (PMs, oil, etc.).
The US stock market will rise in US$ terms, but tank relative to “real things”.
ALL the fiat currencies are in the process of failing.
dollar should have crossed 80 on the dollar index in one swift move upwards. lack of conviction or what? Or the hope/fear of the bailout package getting resurrected?
It is better that the 700 b$ “chump change” thing goes thru this time. else they would get really creative like inciting Israel to open a few fronts. that would be ugly. Meanwhile GLD is munching physical & retail counters are empty. Is it really the right time to BUY or just HOLD?
Joe M.
Hot tips are great to trade and make investments on. Got anything on the football schedule for the weekend?
re: bank holiday. Oct 7, 2008. I have my extra large tinfoil hat on. Google the date. If anything happens, well things will be a lot worse than we think.
Somewhere between MSM and the fringes of the net is the truth.
You say poor pallidium.
Show me where I can buy a few ozs of physical palladium. the dealer I use, has been sold out for a few weeks now.
cheap = plentiful
expensive = scarce
Right???
Here’s my two cents. I think the Silver and Gold train is about to leave the station. The cot reports say the shorts are on the run, the CFTC is investigating silver manipulation, retail pm’s are in short supply, and we are entering the seasonaly strong period for pm’s. After the 700 billion dollar bailout is passed the stockmarket will have a one or two day rally and silver and gold will have one more retreat, then calmer heads will prevail and the pm’s should start their move up. JMO
To keep the same railway analogy as toto, I think the Gold train has left the station. The only problem with us rail fanatics was: we have been waiting for it on the wrong platform!
I would suggest to broaden your horizons and look at gold from an European and Asian perspective. Did you know that English Gold (Gold expressed in pounds per ounce) almost hit a record high yesterday? Did you know that EuroGold (Gold expressed in euros per ounce) is above eur 600?
The dollar is not the only paper currency out there. Gold “knows this” and the British and Europeans too…
These are some excellent comments, maybe some of you guys (and gals) should be writing the posts instead of me!
You made an excellent point dieuwer. I had failed to consider a pm breakout in the euro and pound. This event could be precieved as bullish for the next leg up in the pm’s against the dollar. Last fall I believe it was the breakout against dollar first and the euro, pound, and yen came later.
Indian gold will hit the all time high this festival season. Meanwhile the dollar index is at 80. Where from here? let the markets decide.