Tuesday, April 27, 2010

Gold Is Finally Transforming Into the Ultimate Currency Once Again

The stock market plunged hard after S&P downgraded Greek debt to junk status and cut its ratings on Portugal sovereign paper.  What may have taken most observors by surprise is the spike up in gold that occurred, even with a move higher in the U.S. dollar.  Gold has been transitioning this year into its 5000 year historical role as the ultmate currency and the ultimate wealth preservation tool. 

This chart below from http://www.kitco.com/, which shows the trading action gold vs. major global currencies over the last 24 hours:
(click on chart to enlarge)

The redline on the chart shows that even though the U.S. dollar is higher today, primarily against the euro, gold is outperforming even the U.S. dollar.  This is very bullish.

I've linked a quick interview with Marc Faber, in which Faber remarked 5 days ago: 
“If you have $100 today, you buy that much less in terms of a basket of goods and services then you did ten years ago – paper money has already lost a lot of value and in my view it will continue to lose value. The price of gold will adjust on the upside according to the loss of the purchasing power of money...If someone is rich they should buy a ton every month."
Here is the link to the interview - it's brief and well worth reading:  Faber on Gold, the Fed

If I were the U.S. policy-makers sitting in Congress, the Fed and the White House, I'd be careful about asking for whom the bell is tolling - it's not Greece, Europe or Goldman Sachs...


  1. As always Dave another fine piece. We have only started the deleveraging process.

    House prices are still dropping.
    Small businesses are borrowing less.

    Governments are borrowing more....but not for much longer.

    As the Greeks have discovered, if you borrow to much, at some point, the market punishes you with extreme interest rates, like 13.5% yield on a 2 year bond.

    Uncle Buck spikes to 82.12. Next stop 90. This could unravel so freakin' fast.

  2. There is some deleveraging from the consumers, although credit card and auto debt has jumped in the last couple months.

    The financial sector shifted a lot of its debt to the Govt. Govt borrowing is going parabolic.

  3. From a post I made on another site. Thoughts on the AU/AG action today?

    "WOW! That's all I can say.

    IS the 'system' more corrupt, over-levered and orchestrated than we can imagine??

    S & P, the ratings agency, has to come in and drop Greece to junk and warn of the same for Portugal....the exact day that Silver looks to finally close over the big call position in Silver ($18.00) and force those short to come up with the cash...or metal?

    Euro/AU/AG get hammered as the USD rises.

    Did we not expect this, but figured it couldn't happen again...could it?

    What a farce free markets are. They are just too IMPORTANT to be FREE. End of story."

  4. Thanks for sharing that. Although I would say that today the manipulators got their short positions jammed up their ass. Tomorrow, of course, is another day and I'm interested to see how the metals respond to the FOMC statement.

  5. Wow, this post is apropos for a day like today. Nice timing Dave! Although the $USD did do a rocket shot along with gold.

  6. Hey Rodd. Just refer to me as "Tim Tebow supporter" from here on out LOL.

    Ya, the last time gold moved up with the dollar for an extended period of time was late 2005. The dollar rolled over around Dec and we had a huge move in metals/miners from late '05 - mid May '06.

    Today the dollar was up big because the euro, but gold outperformed everything.

  7. Gold? Is it really gold what is being transformed? For me it looks like another paper promises are transformed.

  8. This year the currency basket that we measure movement against, and the constituents of the IMF SDR, are re weighted. Many are campaigning for the inclusion of gold in those weightings, which, if the world were honest, would require an audit of physical holdings.

    What we have to recognise is that these moves have re-weighting motives behind them.

    US ratings agencies are all over satellite EU nations that comprise (at least Greece does) a very small % of EU GDP......No where near the % that Calif, for example, bears to the US GDP.

    When the FEd system was formed in 1913, each Fed area bank had the authority to set its own area interest rates, thus capital flows offset differing regional growth rates.... The EU was advised thus, but were too stupid. They then extended that stupidity to a failure to set up any mechanism/body to aid nations in distress.
    Arrogant cretins springs to mind.

    Having said that, the German voter resistence to bailouts is raging....clearly they do not view the EU as a single currency/economic area, and clearly it can't be, there being many other factors also saying no.

    Whatever..... during a week when the US is set to offload a further heap of festering debt, the downgrades resulting in a stronger $ and stronger bonds look extremely timely to me. More lipstick on the pig.

    I'm not battering the $ because of my geographical situation, merely saying that there are precious few honourable currencies at the moment. It's a reace to the bottom for all nations issuing their own currencies and able to enter that race. EU nations can't and deserve market bashings.

    If the EU breaks up as a result, the US will benefit in the reserve currency stakes, and perhaps current machinations should be viewed in that context. If the EU shrinks to its original core nations it will be a stronger currency issued by a much smaller "nation".

    Intersting times...

    Nice to see gold making moves it should have been making for years.
    If the Middle East wealthy start moving on physical, which they love, it will be a shot way past the moon!

  9. Looks like the bastards levered at 100:1 at the LBMA are bringing the goldprice dowwn.

    We really do need to drain the physical to explode this fraud.....think of all the derivatives that would explode too...Niiiiice!

    Stick it up em!

  10. @anonymous re: EU/IMF/$ - I think China is jockying to gain control of the global scene and I've seen the IMF SDR proposal but I believe China ultimately will introduce a gold-backed yuan that will be the global reserve currency. Makes the most sense to me. They need a way to "clawback" the wealth that they'll lose when the U.S. eventually does a massive reval.

    I think the ME is quietly accumulating a lot of gold and the recent oil/economic alliance between Saudi and China is testament to the fact that OPEC is slowly going to wean itself off the dollar.

  11. @anonymous re: LBMA - I am getting some information from a VERY credible source regarding the fractional bullion problems developing at Scotia and HSBC. There is a serious problem bubbling up behind the scenes and it is thought that the mysterious massive withdrawals from the SLV trust since late February - despite the big move higher in silver, which usually correlates with big purchases by SLV - are being used to try and address the massive shortage of physical silver in relation to paper silver. If my source is right, we may soon see some large upside moves in the price of silver.

  12. Yes, Gold returns to be the refuge as it was many times... But there is something underlying, the introduction of the One World Currency, called Amero... To do it not only the dollar had to be weakened but also Euro must...

    It will be wekaned at the point anyone would see the complete necessarity of this new currency for the whole world...