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« Yamana Gold Incorporated: Suffering! | Main | Kinross Gold Corporation: Call Options Update 09 Oct 08 »
Saturday
Oct112008

The US Dollar rallies, but for how long?

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The US dollar closed yesterday at 82.62 on the US Dollar Index extending its rally from around the 71 levels. It will be interesting to see just how it behaves when the dust of this week’s turmoil starts to settle. Our opinion, for what its worth is that it will head south again when investors realise that they are sitting on an eroding asset. However it is a parking place for now allowing investors time for intelligence gathering and time to think about what’s best for them. The worlds equity markets are a disaster and this saddens us enormously because people lose their jobs, see their pensions schemes shrink, some get evicted from their homes, the strain put upon relationships and family life can be unbearable. All markets need to go through a final capitulation in order to complete the cleansing process so that they too can once again start over. This mega money rescue package will be soaked up in no time at all and it is still akin to putting out a fire with gasoline. Liquidity is not the answer to insolvency as we have said repeatedly.

Over in the precious metals corner we saw gold, silver and their associated producers sold off during the scramble by investors to get their cash to the sidelines. One analyst said that good quality stocks were being sold off because no one wanted to buy the poor quality stocks, he may have point there!

The finance chief’s from the world’s most powerful nations are now putting their heads together in an effort to resolve this melt down and we wish them every success. However, we will remain in the gold and silver sector, as we believe they offer us some protection from the carnage even though they have to take a few knocks now and again.

Try and enjoy the weekend.

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Reader Comments (19)

1) Susan Lee (a weekly columnist for Forbes.com) concluded in her recent article "Good As Gold?" that it is retail demand that controls the price of gold, not investment demand. She has a point. Demand for gold for use in jewelry makes up 65% of total demand and jewelry is a discretionary purchase.
What do you think?
Will gold prices remain buoyant in a recession?
Read her article at http://www.forbes.com/opinions/2008/10/09/gold-inflation-bangles-oped-cx_sl_1010lee.html

2) When the dust of this week's turmoil starts to settle, I expect to see a bear market rally in equities and gold prices will suffer a setback until such time when investors have to abandon equities again. Do you agree?

3) In a deflationary environment, do you still think that gold will still shine? What does history tell us about it?

4) I think the recent US dollar index rally is sustainable (above 80) for quite some time because the component currencies are weak especially the euro and pound sterling, unless the Fed aggressively cuts rate again and both ECB & BOE keep rates unchanged (but that's not likely). Note that both ECB & BOE have more room to cut than the Fed, and as such the upside potential of the US dollar index is greater, which will then suppress gold prices. What say you?

5) I'm surprised that gold did not hit $1000 this week despite the worst global financial crisis since the Great Depression. That prompts me to reevaluate gold's safe haven status. Please comment.

October 11, 2008 | Unregistered CommenterLF Phang

I am thinking exactly what LF Phang is thinking.

#5 - According to a professional off-the-floor commodity trader, it is manipulation by the monetary officials.

#4 - Jack Crooks says the same. http://www.moneyandmarkets.com/currencies-and-cotton-candy-rate-cuts-4-27439

#3 - I don't think gold will do well in a deflationary environment.
Monty Guild: " ... the inflation rate would moderate ...... over the short term; long term is a different story. Once the velocity of money resumes its normal functioning, the massive amounts of money currently being pumped into the system worldwide will create a big inflationary bubble. The inflation will not hit in the next few months, but it will be big when it does hit." http://www.guildinvestment.com/

#2 I was thinking exactly the same thing.

Personally, I am not hopeful that gold will surpass 1,000 by year end. It may be stuck in a trading range??? Anything can happen though. I'll let the market tell me.

My understanding is that Jim Rogers in highly in cash. Has he changed strategy and off-loaded his gold position? Hmm......

E.P.

October 12, 2008 | Unregistered Commenterep

if gold were not a safe haven,the usa govt wouldnt be the largest holder of gold in the world ! say me to you.....why did so many sell their gold silver etc stocks-its not that gold/silver is not a safe haven......i have a theory....from the time the selling started,the sellers knew this crisis may last at least a couple weeks,money has to be moved,paperwork has to be done,bigs shots in govt have to negotiate,new laws may have to be passed,etc etc etc...sooo if you knew all this had to happen before everything was on its way to recovery,,why not sell everything because you knew consumers will be selling as long as this financial crisis isnt fixed yet...sell and wait a couple of weeks anticipating to buy in at a LOWER price....THEN after all the banks can start guaranteeing their loans again--they all buy their stocks -including gold -again...its not that they dont think that gold is a safe haven-they were just selling it so they can buy it at lower prices later !

October 12, 2008 | Unregistered Commenterlou

dont worry ............after ALL the banks can start guaranteeing loans again everything will be on its way back to normal..the usa debt is SUPER high and will be going higher--this just devalues the usa dollar and makes gold even more valuable...gold will head even higher than previous years after the crisis is over....the peak this and next year will be even higher because of the even HIGHER DEBT the usa has.....700 BILLION MORE THAN LAST MONTH!!! more debt brings down the value of the usa currency.....as for deflation....i can only see inflation ahead...they way the people of the usa and the world will have to pay for all the countries of the worlds bailouts MEAN THE TAXPAYERS WILL HAVE TO PAY FOR IT SOMEHOW !!!! through higher taxes and prices of all goods! WAIT AND SEE ! you think this bailout is going to be paid by the rich??? the common people will be the ones who will feel the major brunt of all this! and you think the oil prices are going down ? ha let me tell you something---the reason why its low right now is cause everything is at a standstill right now ... the world is in a financial crisis--no big money trading between banks right now means less business between nations...this means less demand for oil as business relies on movement relies on oil,gas etc to move goods from one place to another...once the crisis is so called fixed where all banks can guarantee their loans--- business will start moving again -- besides i read that opec is considering LOWERING THEIR PRODUCTION not because of the crisis,not because of less demand BUT BECAUSE THEY FEEL THE PRICE OF OIL IS TOO LOW right now and they want to bring it back up! of course what they are planning now ----TO BRING THE PRICE OF OIL BACK UP---- we will not feel the affects of that until after the winter is over--{what they-opec- says now takes at least a couple of months to take in effect } --thank goodness the govts of the world may be toying with us but the usa and the govts of the world are negotiating with the oil gas suppliers so we will definately not freeze in our houses over the winter--WE WILL ALL FEEL HIGHER GAS OIL PRICES next year! you can bet on it !

October 12, 2008 | Unregistered Commenterlou

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October 12, 2008 | Unregistered Commenterlou

LF Phang

October 12, 2008 | Unregistered Commenterlou

wow my previous posts were deleted ! just goes to show they dont want you to know the truth ! but hey what the hell its sunday im not at work so this is what i would rather be doing so here it goes again -WHAT THEY DONT WANT YOU TO KNOW ......

October 12, 2008 | Unregistered Commenterlou

wow after that last post i put on my previous posts are back! what the hey!

October 12, 2008 | Unregistered Commenterlou

hey i dont know everyting thats why i subscribe to this site -to know more ! now what have i found out what the people in the know --WHAT HAVE THEY BEEN BUYING?? THIS PART OF THE MARKET HAS BEEN DOING AWESOME SINCE SEPTEMBER ! ILL TELL YOU ---LOOK AT YOU ETFS SUNSHINE ! EXCHANGE TRADED PORTFOLIOS IN THE WALL STREET JOURNAL BABE ! SYMBOL SKF WHICH WAS A PICK BY THIS SITE THAT IS AN ETF THAT IS A BET THAT FINANCIAL STOCKS ARE GOING LOWER IS DOING VERY WELL AND HAS BEEN DOING VERY WELL IS UP 98% THIS YEAR! HAPROSHORTULTRASHRTEM SYMBOL EEV UP 116% ! ULTRASHORT QQQ SYMBOL QID UP 102% ! ULTRASHORT SEMICONDUCTORS SYMBOL SSG UP 126% ! ULTRASHORT TECHNOLOGY SYMBOL REW UP 107% ! LOOK AT SO MANY ETFS THAT ULTRA SHORT VARIOUS PARTS OF THE MARKET ! THESE I SAY THESE ARE WHAT THEY HAVE DUMPING THEIR MONEY INTO AND MANY ARE BECOMING MILLIONAIRES BECAUSE THEY HAVE BEEN BETTING AGAINST THE MARKET -- MANY RIGHT AFTER THE START OF THE BAILOUT ! MANY USED OPTIONS WITH THESE SHORTING ETFS TO INCREASE THEIR GAINS SUBSTANTIALLY MORE !! but this wont last -as soon as this is fixed-they are anticipating by roughly october 23rd --these gains will be reversing--could be earlier could be later--its risky to stay in too long---all these will reverse and people will take their money out of these and many more etfs that short the market and be putting it back into stocks including gold silver uranium precious metal non metallic metals etc...it all depends when the banks of the world can start doing business as usual again-when they all receive their money from the bailout and all loans are guaranteed again! WAIT AND SEE !

October 12, 2008 | Unregistered Commenterlou

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October 12, 2008 | Unregistered Commenterlou

Hi lou,
This is interesting. Do you agree with my points?

October 12, 2008 | Unregistered CommenterLF Phang

to conclude that retail demand controls the demand for gold? retail demand only makes up a small part of it --true the part of the season where retail demand brings up the price of gold does influence the price of gold BUT the main stimulus of the price of gold is the debt of the usa and other countries-when usa and other worlds currencies are deflated due to HUGE DEBT AS IN THE BAILOUTS-GOLD IS THE ONE CURRENCY ALL COUNTRIES WILL BE STOCKING UP ON -THATS WHY THE USA HAS THE MOST GOLD! TO BACK UP ITS CURRENCY IN CASE OF CURRENCY FAILURE AND AS AN INSURANCE POLICY--AS WELL AS COUNTRIES LIKE CHINA INDIA RUSSIA THAT HAVE HUGE AMOUNTS OF GOLD AS A PROTECTOR AND INSURANCE FOR THEIR CURRENCY... to reevalute golds safety status ?? no i dont think its time to reevaluate golds safe haven status ...this getting out of gold and into shorting etfs...is only temporary...gold will hit new highs due to the even higher usa debt....the getting out of the markets regular stocks was and will be only temporary..the getting out of the stocks that support the market and out of gold silver uranium industrial metals is only temporary- a short term play..they, the people who got into all these shorting etfs -where the money has been made mostly since the beginning of the bailout -- know this is only a short term play ! once the banks start guaranteeing their loans again--they will bail out of their shorting etfs and into regular pro market stocks BECAUSE they are so cheap now! if you are against the notion that gold has to be reevaluated as a safe haven then no phang i do not agree with your points...if gold were not a safe haven then why do you think that govts of the world especially the usa - has such a huge amount of gold in their vaults ????????

October 12, 2008 | Unregistered Commenterlou

y

October 12, 2008 | Unregistered Commenterlou

i meant to say phang IF YOU ARE FOR THE NOTION THAT GOLD HAS TO REEVALUATED as a haven of safey -meaning that you have doubts that gold is a haven of safety-then NO PHANG I DO NOT AGREE WITH YOU.... COUNTRIES MAY SELL SOME OF THE GOLD TO MAINTAIN A BALANCE AS A WAY FOR THEM TO MANIPULATE THE MARKETS..but they will never sell all of it because they ALL know that gold will and will always be an insurance policy against the greatest threat-complete deflation of its currency--that is why the countries of the world have so much gold in their vaults ! thats why the usa govt even though they make many mistakes-they all know that they have to JUST HAVE TO keep VAST AMOUNTS OF GOLD IN THEIR VAULTS AND THEY HAVE IT WELL PROTECTED ! gold is and will always be the greatest insurance policy for a countries currency and its well being/strength !! think about it phang !

October 12, 2008 | Unregistered Commenterlou

you playing with me phang? i think its pretty obvious dont you?? you seem to think golds status has to be reevaluated,you talk about deflation,...this susan lee obviously is being paid by forbes to reflect forbes view--what history tells me phang? ill tell you a fact ALL COUNTRIES HAVE VAST AMOUNTS OF GOLD more than forbes will ever comprehend or have in their vaults ! there is a reason why phang! please dont ask me if i agree with you when its very obvious that what i say that is fact and what susan lee via forbes is forbes opinion is just that -an opinion .........

October 12, 2008 | Unregistered Commenterlou

A Possible Comex Scenario

If the world indeed thinks that the Comex exchange is a fraud, then there could be markets in Asia that consistently open up by the $80 declines of the Comex. There will be vanishingly small open interest on the Comex as long traders would be averse to risk. Pretty soon we could see $100 and $200 spreads between the Asian market open and the Comex and London prices on gold. There will be few buyers in those markets so the sellers will be able to drop their prices to ridiculous amounts in the Anglo-American markets. As the time zone hits Asian markets there will be fewer sellers at London and Comex prices as this would be too risky a trade to make in that market. Open prices in Asia will start to be correlated with the previous day's Asian market prices. We'll see a two tiered market, with increasing volume in Asia and decreasing volume in the Euro-American zones. As traders favor markets with liquidity and large volume the Asian market will become more the authoritative price of precious metals. This will especially true when traders see that they can take delivery of product more freely than in the Western markets. We will see some sickingly huge price "swings" between markets, but the true market will be the most liquid one.

October 12, 2008 | Unregistered CommenterDavid

Is Susan Lee looking at gold as a COMMODITY only? One of these days, gold will act as a CURRENCY. The price of gold will go up even if there is no inflation but as a result of the debasing of the US$. My two cents.

October 13, 2008 | Unregistered CommenterJJ

JJ - A good two cents worth.

October 13, 2008 | Unregistered CommenterGold Prices

The US Dollar has dropped 1.32% today to close at 81.54.

October 13, 2008 | Unregistered CommenterGold Prices

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