Monday, September 13, 2010

The U.S. Dollar Is In Trouble

Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

This quote comes from a Bloomberg article last week which reported that China and Russia will bypass the U.S. dollar and engage in trade with each other using yuan and rubles.  This could start freely occurring sometime this month.

In the words of one analyst: “Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency...” Here's the link to the article:  Dollar R.I.P?

Here's a chart of the U.S. Dollar thru today.  It does not look good:

(click on chart to enlarge)

This bearish chart is reinforced by the poor fundamentals supporting the dollar.  The latest of which is an arguably de facto failure of last Thursday's 30-yr Treasury bond auction.  Although this factoid received very little media commentary, the Primary Dealers (Wall Street banks) were forced to buy 62% of the long bond auction last week.  In and of itself, this means that the traditional buyers of long-dated Treasury bonds - the Japanese, foreign Central Banks and institutional asset/liability fund managers - were reluctant to make a long term bet on the dollar.

The weak dollar may be supporting the surprising strength in the precious metals market, especially among big foreign buyers, who are vacuuming up physical gold and silver right now.  In one of his daily "quickie" reports which can be accessed in the Midas report at http://www.lemetropolecafe.com/, "JB" reports:  "India is booming and the “wealth effect” for the world's largest gold buyer cannot be ignored."  In addition, per JB, Standard Bank of London reports:
Demand for physical gold remains robust out of Asia and India ahead of Q4:10. Our Standard Bank Physical Gold Flow Index remains in positive territory indicating that buying in the physical market continues to outpace selling, even at this near-record high gold price.
So there you have it.  Many newsletters writers issued bearish short term trading calls this past weekend on gold based on the technical patterns of the charts.  Absurdly, there are still a lot of lemmings who live and die by their favorite newsletter writer.  Newsletter peddlers are usually wrong, by the way.  It is with dry humor that JB's report today is titled:  "NY Chart anxiety = Happy Indians."

My best advice would be to start unloading your bond portfolio holdings before the dollar really starts to flush down the toilet and use the proceeds to buy a lot more physical gold and silver.  I would like to point out that premiums for 1 oz. silver eagles on Ebay are back over $3/oz.  This is indicative of strong retail demand and waning supply.

19 comments:

  1. Speaking of lemmings Dave, I had a small but uneventful confrontation with one over the weekend at a small gathering of Vampires if you will. There was one loud mouth Dope who was calling "Gold and Silver the biggest bubble he had ever seen" ....chuckle chuckle chuckle.....

    In hearing him speak within his click if you will ( 6 what I assumed to be smart oriented adults ). I jumped into the conversation and asked a simple question..."And How much Gold and Silver do you own"? He said "none I am in treasuries". ( I turned to the remaining 6) And how much Gold and Silver do you kind folks own...Same answer all 6 "treasuries" and a quick barbaric relic dig if you will
    ( more chuckling ).....I said listen to yourselves, you all own treasuries..I said Folks the bubble you speak of you all own...scary scary I said. And walked away...Dave if you listened close enough you could hear a Nat fart in that room when I walked away. I Grabbed my wife and left.

    Hoi Polloi room full of dumb asses if there ever was any.

    hoi polloi

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  2. Great anecdote Bill! I may do a blog post a bit later on the Treasury market situation. Everyone is "all in" in terms fo the public. They're fucked.

    As long as Joe 6-pack dope parrots the CNBC "gold is a bubble" mantra, we're going MUCH MUCH higher.

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  3. I believe this will occurr but it may take some time based on the following(the charade will continue as long as possible):

    1.All currencies are worthless.
    2.Gov will monetize debt keeping bonds up and interest rates down.
    3.Once markets are allowed to go down, then the $ will probably proceed back up. Around election day??

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  4. Great anecdote Bill, and very well played. :)

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  5. Comex is sweating big time this month.

    I'm reporting about their inventory, delivery notices, open interest left now almost daily.

    Today I posted interesting post on my blog at
    http://agaupm.com/comex-paper-silver-buyers-want-physical-badly

    In it I analyze last 3 business days at Comex.

    Silver is definitely poised to go up in price.

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  6. ....
    I seem to remember a long time ago an American president whose name was John Fitzgerald Kennedy said "Ask not what your country can do for you, ask what YOU can do for your country".
    Your post... is a DEMONSTRATION, my friend, of WHY the U.S. dollar is going down. Because... the American people are SO BUSY trying to make a BUCK ? A LINGOT ?? that they have no time for the very idea of country OR ANYTHING ELSE FOR THAT MATTER.
    When the ship goes down... don't whine.
    YOU will have significantly contributed to its going down.
    With MILLIONS OF OTHERS, so you won't be alone ; you will be in.. good (?!!!) company...

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  7. So, Debra,

    Being a productive member of American society has caused the destruction of that society? So I guess that means to fix the problem we should become unproductive?

    Anyone with half a brain knows that our current crisis is a direct result of ignoring and misapplying the principles in the constitution. Ultimately it is "our" fault for all of this because we elected the people that have led us down this path.

    I don't sense any whining on this site, except by the occasional poster like you. The rest of us are preparing to pick up the pieces when TSHTF.

    WisMadChE

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  8. whoa whoa whoa debra. I dont understand the logic.

    Who's causing the dollar to go down? the people here? or the people printing?

    ask not what your country can do for u, but what u can do for ur country? Tell that to pelosi.

    nevermind. waste of time. i gotta get back to work.

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  9. Dave,
    I would like to add something to this from other part of the world.

    Here in Western India/Mumbai/Bombay even some of the jewelers, were short on Gold from INR 10000/10 gm level, today Gold is INR 19267/10 gm.

    I heard from my broker, that, they finally liquidated their shorts last week.

    Leave the common public in US, but this is a jeweler from India shorting Gold !!!

    What can you say?

    I know it is going to be hard to believe. I feel most people listen to CNBC and act in earnest without being rational and logical.

    CNBC and JPM/Goldman has invaded India too.

    From India

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  10. "Paper money eventually returns to its intrinsic value - zero." (Voltaire, 1694-1778)

    Joe M.

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  11. AgAuPM Nice Blog....bookmarked.

    Bill

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  12. Hey India. Thanks for the color from your part of the world. Amazing the jewelers were short gold. Maybe they were hedging inventories thinking the public wouldn't buy with the price this high, but based on reported import premiums yesterday, India is hoovering up gold right now!

    Please post anything you feel is remotely relevant.

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  13. I'm looking onto dollar movement now and I bet it is our anonymous already realising huge profits on his dollar long positions now. :-)

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  14. Yes Dave,
    Hedging could be the game, but still short from low level of INR 10K/10 gm is something hard to digest.

    By the way, where do you look for "Indian Import Premiums" ?

    From India

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  15. ROFLMAO stibot - I know, I've been trying to be gracious and not kick sand in his face lol.

    Anonymous, JB (John Brimelow) writes a brief report on global gold trading 2-3x per day. I access this by subscribing to www.lemetropolecafe.com

    You can actually do a 2 week free trial and Bill Murphy does not require that you put up a credit card.

    JB's report is contained in the daily "Midas" report that is posted at the "James Joyce" table every afternoon.

    I am not promoting this subscription at all. I have been a paid subscriber for about 8 years. It has some component of cheerleading, but GATA has been right about what's going on in this market for over a decade now.

    I don't know how someone can be serious/professional investor/trader in the precious metals and not subscribe to this.

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  16. yo dave, I think you should go back to using "hoovering". "Vacuuming" just doesn't roll off the tongue like "hoovering" does. LOL.

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  17. Gold is NOT in a bubble, though as George Soros says, gold will be the "ultimate bubble".

    Let's look at the history of bubbles, shall we? many have most of the following in common:

    1) everyone is talking about it
    2) everyone owns it or wants to own it
    3) prices are rising beyond any normal trajectory
    4) "flipping" it is a sure way to make a profit
    5) everyone believes you can't go wrong with it
    All of this applied to the great tulip bubble, the dot.bomb stock period, and most recently housing. How much of this applies to gold at present?

    1) everyone is NOT talking about it
    2) very few people actually own it, and not that many seem to want to buy it thinking the price is too high
    3) the price action and trajectory of gold is prtty sane and ordinary
    4) there are no "flippers" in the market like with IPO's and houses
    5) most people still deride it as a useless metal
    In the face of all this, gold has made a steady climb from 2001/2002 to where it is today without any fanfare, and mostly ignored except for periodic spasms of interest from the press when it broke $1000/oz and most recently when it made another high. Most people have zero understand of the history of gold as a store of wealth, and the fact is was considered money through the world until Nixon closed the gold window in 1971 and the world moved to a pure "fiat" system.

    As the banksters have looted the societies of the world, and paper money is run off the presses like toilet paper from P&G, the early money -- aka "the smart money" has slowly been building positions in gold for some time. Much of this money cares not what the price does today, tomorrow or next week. they are looking a fewyears down the line to the eventual bond crisis that will hit the US as it has hit the PIIGS in the EU, and want to "preserve wealth".

    Continual IMF sales have been met willingly by nations anxious to build reserves after years of drawing them down as the fiat money experiment seems destined to end. China has been building reserves via internal mines and a conscripted market internally, only announcing occasionally that they have yet again upped their holdings without major market interventions by them. In additon, they now encourage their people to own gold -- a practice illegal just a few years ago -- as a means of increasing national reserves without government having to pay for it.

    NO, sorry, there is STILL NO BUBBLE in gold. It is still early in the process of building. And Soros is most probably right, it will probably be the ultimate bubble that will end in many many tears. But right now, if you see it as insurance against the banksters and their cartel, and not as a trading vehicle, you are still early in the process as well.

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  18. I am in chile and have my savings in dollars. the dollar today november 18th 2010 is so low that it is scary.
    I think the Amero will come soon because it looks like this organization is getting the dollar so low then the Amero will come and they will buy your dollars for few cents. Scary but real.

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