Gold and silver top out, stocks fall and the dollar rises
Posted on 10 November 2010 with 2 comments from readers
It took a statement from the President of the World Bank about the need for a new monetary system to include five major currencies and gold to send the yellow metal skywards past $1,400 and silver at one point looked set to touch $29.
But that is probably it for the moment for precious metals, and there should be some reflection before the next leg in this bull market that will carry gold past $1,650 as the greatest gold bug Jim Sinclair has forecast for the middle of next January.
Dollar rally
The dollar will now rally as stocks trade down, and a rising dollar is not good for gold. How long this stock sell off will last, and where it will end up is a difficult call.
Marc Faber has 950 on the S&P as the point at which his old friend Ben Bernanke will push the button on his printing press. But it is true that Bernanke might wait a while at this stage. Puffing up the stock market bubble right now serves little purpose, and that $600 billion QE2 might be better used supporting growth next year if the economy runs into more headwinds.
You might actually be betting on the Fed by betting on Marc Faber! Volatile markets make for some unlikely bedfellows. A dollar rally would also help the US this week in its G20 negotiation, and counter accusations of a devaluation policy. Just as if $600 billion of QE2 could really be seen as anything else.
However, what the surge in gold and silver prices yesterday has reminded investors is that this remains a superb speculation for the future. In silver it is the challenge to the cartel that has suppressed prices for 30 years that is most exciting, and the unwinding of huge short positions has taken place so there is nothing to stop the metal making up for 30 years of artificial prices. This is like the Soviet Union repricing oil to world levels.
Gold undervalued
And if gold is going to return to the currency tables then it is also massively undervalued. Note that we are not talking about a new gold standard, rather something like the monetary system JM Keynes proposed during the Second World as a replacement for the gold standard. After any major financial crisis a new monetary system is a part of putting things right.
Not that the G20 leaders this week are likely to endorse anything like that. It will probably take more global economic instability to bring them to their senses. But the President of the World Bank is a powerful advocate for an idea which will be seen as just commonsense in the end.
The world needs a currency it can trust and the US dollar has lost it. Currency volatility and much higher precious metals prices will make the point and politicians will finally understand.
The next issue of the ArabianMoney investment newsletter will focus on gold and silver and how to position your portfolio to best capture this rising trend. These actionnable investment ideas are not available on this free website (click here).
2 Comments posted by readers:
Very interesting and worthwhile commentary, Peter!
Several thoughts come to mind here:
1. Gold and Silver Suppression on 9Nov Was a Watershed Event:
Significant comments from respected financial gurus (e.g. the one from World Bank President Zoellick) are very carefully orchestrated in advance between these global financial gurus. While his comment has given a renewed sense of “respectability” to gold, it also was a signal to the gold suppression cartel (led by the likes of JPM and HSBC) that they had better start manipulating gold and silver really hard if they are to get out of their massively short positions. Interestingly, JPM alone has lost approx. $1.5 billion in margin calls over the past month or so!!!
2. Stiff Head-Winds for the US at The G-20 Summit This Week:
The US delegation is gonna be facing very stiff head-winds as most of the represented governments (both developed world as well as developing countries) are strongly against the FED’s QE2 policy; this policy is causing massive inflows of money into the developing countries … chaos abounds! I strongly suspect that since this group can’t even agree on the time of day, each country will secretly “go its own way” to protect itself from US monetary intransigence.
3. Gold Standard Takes Many Years to Work Out:
There are many complex factors (establishing the “price”; what exactly will gold be backing up? Amount of time needed for study? etc.) that must be taken into consideration as the world struggles with coming up with a new global reserve currency, including one that includes gold. For an absolutely excellent read on this subject, listen to Jim Rickards latest comments here:
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/11/9_Jim_Rickards_files/Jim%20Rickards%2011%3A9%3A2010.mp3
Excellent article on Silver here which means silver is going up.
http://online.barrons.com/article/SB50001424052970204253604575606503315330226.html?ru=yahoo&mod=yahoobarrons