Hold on to gold for systemic protection
Posted on 15 August 2008 with no comments from readers
Massive currency intervention ahead of the US presidential election explains the dollar rally that has depressed precious metal prices over the past two weeks.
But all the intervention in the world can not compensate for a monetary system that is fundamentally flawed with huge counterparty risk in derivative products and diving into a recession. Consider the logic of the dollar rally, there is none really.
We hear that the EU was in negative GDP territory in Q2 and Q3 is looking worse, so the EU might beat the US into declariing a technical recession. The dollar rises, US exports become more expensive for sale into a declining EU market.
Now General Motors saw its US sales crash 20 per cent in the first half of 2008 and was saved by export sales. What happens when the US is still in recession and export markets collapse? There will be a double dip recession, and profits will come tumbling down. The stock market will tank. Interest rates will be cut. The dollar will decline again.
Is it more realistic to believe that the US is about to undergo a miraculous recovery? No it is about to undergo an election and certain parties want to win! The hoards of investors being attracted back into US stocks and the dollar are being set up for a mighty fall.
Banks will go bankrupt as the credit crunch takes another savage bit out of balance sheets. There will be a systemic run on the dollar. Meantime, Europe and the UK and other indebted countries like Australia will also suffer painfully long and difficult correction periods. Their stock markets will fall. Interest rates will be cut. Their currencies will devalue. Japan also looks none too healthy and China and India will be hit worst of all as overstretched emerging markets.
In this systemic failure, what asset class will offer protection? Step forward precious metals which will first be considered as a no-other-alternative strategy and then gain an upward momentum as more and more climb on to the same bandwagon for survival.
This is where the second, and final climatic phase of the current precious metals bull market will emerge from the shadows of today’s scandalous manipulation of currencies ahead of the US presidential election. Eventually there will be a spike to levels unimaginable today.
Or perhaps you will choose to believe the alternative of a rapid recovery in global economies and a stock market boom with strong currencies all round. But global credit markets are down, so that is just not going to happen anytime soon. The system is bust.
Protect your assets and go into precious metals while you still have time. The current setback is the dark before the dawn and anybody selling out now will bitterly regret both their loss today and their loss tomorrow.
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no Comments posted by readers:
Not convinced by the proximity to the US presidential election! It doesn’t really got under way until September, does it?
Besides, aren’t hedge fund managers buying up the cheap dollar as central banks are propping it up simultaneously. I agree, however, in my ignorance that this is only a temporary rally of the dollar.
You’re the second commentator I’ve read who has talked about US bank going bankrupt. With all the state money being poured into the US banks, it’s easy to believe that they owe more to others than the assets they own.
I’ve got out of bank deposits and am waiting the right moment to invest in precious metals. Bank deposit accounts are going to return a negative income to those paying tax, so I understand.
Why, why are gold and silver still falling? Is it just the August holiday and this fall happens every year in this month or is there some other reason?
Actually it was very similar last year and I delayed buying (at $650) – perhaps there is a lesson there!
This is a bit scary, but exciting also. The sudden drop in gold/silver/oil prices is very very fishy in my opinion. It reeks of some sort of manipulation. There seems to be no reason for the drop and every reason for a far greater rise to come. I’m going to advise the few people I know to buy gold/silver very heavily right now.
Gold is currently in a major downturn so buying is not the best idea at the moment. Go to prorealtime.com and find the (free) chart for Gold Spot, ‘XAUUSD’ and you’ll see the turning points at which you can buy and sell.
Look at the Daily, weekly and monthly timeframes and you’ll see the trends over the years.
For those looking for a conspiracy theory as to why gold is falling now, there is none. Gold, currencies, bonds, indices cannot rise/fall forever. They swing high/low over various timeframes. When there is some massive news item like a terrorist attack, resignation of a major politician or a scandal, then you will see a large drop or rise in any of the above assets. After the news has been absorbed then the previous trend will be re-established.
Peter,
I think that is a pretty good assessment of the current economic situation.
I am in total agreement with your call on precious metals. In fact I topped up gold at $780.
For those doubters of gold I would recommend a reading of the article, “RIDING THE “GOLDEN” BULL” by Aubie Baltin at http://www.gold-eagle.com/editorials_05/baltin043007.html
The statement, “EVERY BULL MARKET DOES WHAT EVER IT HAS TO DO TO MAKE THE MAJORITY OF TRADERS WRONG!” sums it up for me.
This is probably the most enlightening article on gold I have ever read.
The Fed just pumped $149 billion into strengthening the dollar by buying it up on the global market.
That is an intervention.
America is a quadrillion dollar market, so is this a a small move? I am unsure, because the derivative market is opaque. But I suspect that mortgaging the future of our children by tax-payer debt is the final outcome.
I honestly think that mismanagement is not the issue. I believe that corruption is the issue, and furthermore, I believe that the those culpable will stop at nothing until they have to eat grass like King Herod.
The FBI can only do so much. We need change from the very top on down if we are going to stop the theft.
I have a list of banks that may fail over the next three years and go bankrupt.
You can veiw it here.
http://bankruptbanks.blogspot.com/
The President of Pakistan has just resigned leaving nuclear weapons in the hands of an unstable government in a country where Osama bin Laden is still believed to be resident…the list of geopolitical uncertainties gets longer and gold will get stronger again.