Friday, October 1, 2010

U.S. Dollar Update...

The dollar has plunged another 60 basis points, from 78.90 to 78.30 (spot basis) from my post yesterday.  It looks like Tim Geithner, that moron and tax criminal who Obama annointed to be in charge of the management of the U.S. dollar, stated overnight that there is no threat of a U.S./China trade or currency war.  This was after the House overwhelmingly passed legislation which would enable the U.S. to impose trade sanctions against China.  Thus, Geithner's idiotic statement of course means that both a trade and currency battle with China  are imminent.

Here's a weekly chart of the U.S. dollar:

(click on chart to enlarge)

Just to be clear, I expect that the dollar, on a technical basis, will soon experience some kind of trading bounce.  I'm not sure I would trade this from the long side.  The better bet would be to cover your dollar short partially and add even more to it if the dollar does bounce.  I can't see any bounce going much higher than the the 80 area.

Of course, the highest probability way to play this is to just keep adding to your gold, silver and mining stock positions.  Make no mistake about it, a substantially weaker U.S. dollar will lead to a significant and painful decline in the lifestyle and wealth of most people in this country.  The only way to protect yourself from this impending disaster is to move as much of your wealth as possible into the precious metals and mining stock sector (and commodities).

As many of you have noticed and commented, the HUI/XAU mining stock indices have been lagging the movement of the metals for the better part of 4 years.  I think this dynamic is shifting into one in which the mining stocks will outperform the metals - and the junior mining stocks offer explosive upside.  More on this next week...


  1. VigiliantVirginianFriday, 01 October, 2010

    "Make no mistake about it, a substantially weaker U.S. dollar will lead to a significant and painful decline in the lifestyle and wealth of most people in this country. The only way to protect yourself from this impending disaster is to move as much of your wealth as possible into the precious metals and mining stock sector (and commodities)."

    Dave, you are the man! This is EXACTLY what I'be been telling people--even on other blogs. I cannot tell you how many people simply do NOT understand this. It blows my mind! The ignorance of the average citizen about gold and silver is simply amazing. The poor fools have no idea what's going on let alone how to save themselves. The irony of all this is that the solution is so simple - convert worthless dollars into PM's and other hard assets before it's too late.

  2. Thing is VV, when the masses finally discover this truth to which you refer, it will be time for people like us to start selling into the mania and start looking for the next big game

  3. I have long had my doubts about the ultimate efficacy of paper gold positions, and by that I specifically mean mining shares. I now have very little doubt that the way forward will be the way it has been to date, namely that physical gold is far preferable to shares. FOFOA does an excellent job of explaining why.

  4. The next big game after the metal mania is probably going to be survival.

    Joe M.

  5. What most of the idiot-wavers cannot comprehend is that there is a massive amount of wealth in the world and those people want to protect it and this is what gold and silver do without compare

  6. I think the gold price has moved away from the average citizen. Let us pretend your an individual who owns no PM's. You have the option of buying your first ounce of gold at $1360. Personally, I don't think I would do it.

    Does this mean the gold rally will stop here? No, I think it means 99% of the people have missed the gold rally.

    I guess silver is a buy here by default. Good luck with that gut wrenching roller coaster.

    I wish someone could compute how many one ounce coins and bars are available. Also include 1/2 oz and 1/4 oz. Why? Because people talk about the available gold for sale, that includes those kilo bars that no one can afford. I would like to know how many ounces and fractionals are out there that people can afford. My best guess is not very damn much. Almost non existent.

  7. remember on hui xau--between NEM ABX and AU--all 3 closing their hedges--a significant part of the mining indexes underperformed gold and the indexes due to those three being hedged.

    Dynamics should be different going forward.

  8. Dave-

    You are on a roll, keep up the great work! :)

    I've been talking about the economy with the clueless masses lately...mostly older folks I know (in laws, aunts, my office landlord who is retired and in his late 60's, parents, peers, etc) Most of conservatives who seem to get that things are bad and getting worse. They have this sense that "it will get better, it always does". I point out the debt levels and the spending and the various time bombs out there. All have mentioned gold as an option to me with out me bringing it up. But they ALL have said-should have bought it a few years ago, it's too expensive! I reply-"you ain't seen nothing yet" and tell them to check into silver. None of them will do a thing. I've said my peace and wish them all luck. :(

    As a follow up on your last post and this one regarding junior miners. I will got with GDXJ and SIL for the majority of my core, but I wanted to build my own junior mining basket with several of your picks and a few others. I'm guessing something like 5-10% of my cash into something like this. I was told to find a broker to buy these directly on the Canadian exchange. Let me know if you agree and what brokers might be worth considering.

    I've got yours on my watch list and a few others. Here's a starter list.

    Canadian Zinc Corp (ADR)
    Great Panther Silver Limited
    Silver Dragon Resources Inc
    Mines Management, Inc.
    Revett Minerals Inc ADR
    Alexco Resource Corp. (USA)

  9. Dave-

    That company Golden Minerals I mentioned a while back. What a moon shot!

  10. Nice Jayhawk! I know most of those companies. We have a very big bet on EMX in our fund. BIG.

    thanks for the feedback.

  11. JK - value-added with humor as always.

    Anonymous - I agree. That is when we'll see the "poor man's gold" effect on silver kick in and drive the gold/silver ratio down under 20. The question is at what price will be gold? 3000? 5000? 10k? There's your upside metric, than and a GSR of say 15 for silver.

  12. Jayhawk,

    I heard there was a research report released on Golden Minerals from Dahlman Rose today; they put a $104 price target.

  13. another question might also be how much gold will be available for all who wish to trade up when the GSR drops?

  14. "and the junior mining stocks offer explosive upside"


  15. when I told some of my friends in Sep 2009 about Gold/Silver, all of them well educated and one of them even working at wall st. bank, tells me that, Gold would be back to $700/Oz.
    A retired merchant navy captain tells me the same thing.
    The fear of ups and downs of gold in their mind is so great, that, they are not able to believe any advice. Their belief if US govt and Dollar is so great that it is not easy to dislodge that faith.
    Now when they would realize it is going to be late. But half of this population who has lot of money in bonds/stocks would move it to GLD (or other paper products) as that is the easiest thing to do.
    From India

  16. I'm in doubt debt level or fundamentals are so important. Also doubt Europe is in significantly better shape than US.

    I believe all that matters is whether Bernanke says he is releasing spigots more or less. If he screws the spigots, DX is back to 90.

  17. Thanks Anon-

    Golden Minerals initiated with a Buy at Dahlman Rose
    Dahlman Rose believes that Golden Minerals has an attractive and deep portfolio of high-grade assets. The firm views the stock as "deeply undervalued," and set a $104 target on the shares.

  18. Over at TPC they covered Dennis Gartman's call that gold is "hyper-overbought". I added this in the comments:

    If gold is Hyper-Overbought than:
    are mega-super-monster-Mayan 2012 overbought

    Everyone I know owns the above tickers, none own gold. Maybe the argument is that too many are buying into a small base of an asset as gold cannot issue more gold like firms can issue stock but is that not the allure of gold?

    At least he left silver alone, LOL.

    Have a great weekend!

  19. Thanks for stopping in my man! All has gone as you have foretold, scary!

  20. Just a couple of things to mention-

    A little while ago I mentioned Hoppe’s book “How to Invest in Gold Coins”

    When he wrote this book back in the 1960’s, $20 gold eagles were selling for $60 each, and I am sure there were ‘educated’ people back then who fully expected the price of gold eagles to drop down to $35 each since that was the official price of gold, the US Dollar was strong and getting stronger, gold was a flash in the pan, -you get the idea.

    (Footnote- the only way to own gold back in the 60‘s without getting hassled by Uncle Scam was by owning shares in gold miners or owning pre 1933 gold coins.)

    I recall one gold bug (can‘t recall who now) who mentioned that after the US Dollar was disconnected from gold, Henry Reuss, at that time the chairman of the House Banking Committee, announced that the price of gold would fall to something on the order of $6 or $8 per ounce-so much for politicians knowing anyting about gold’s value, or knowing anything about anything for that matter.

    The subject has been mentioned concerning gold’s price being as high as it is, and how it is preventing gold buyers from even trying to buy, and how many ounces, ½ ¼ 1/10th ounces are available to sell. This is tough to answer since it isn’t just the US Gold bullion coins that must be considered, think about the Kruggerrands minted from the 1970’s to the present day (in ½ ¼ and 1/10th ounce sizes) Canada and Australia minted gold in ½ ¼ 1/10th for a few decades, British Sovereigns minted for decades, Franklin Mint gold produced that escaped the smelter back in 1980, etc. it is hard to say how much was minted in less than 1 ounce sizes but the figure must be rather high, though finding a seller and avoiding the steep premium is the tricky part.
    There also were/are gold ingots in less than 1 ounce sizes available, I bought a 5 gram gold bar because I thought it was neat (and yes, I did pay a premium over spot for it) but if that is the only way to buy gold at these current prices, a little over priced gold is better than none at all.

  21. we all have to remember that brokers never like physical since they do not make money when clients convert to physical

    second, few have PM stocks, etfs, etc in portfolios-(driven by brokers and RIA's) -so with egg on their faces they diss gold and silver and pound the table on muni bonds and safe treasuries and stocks like LQD, the flash crash topic friday.

    I know as an absolute certainty, there are asset accumulators out there for the very hi net worth who parcel out clients assets to indexers and hedge funds and not one cent of clients money is allocated specifically to pm.

    I have to feel those assets will at some point find their way into PM and when it happens--"boom goes the dynamite".

  22. If the current brouhaha over the 20%+ undervaluation of the Chinese Yuan (renminbi) versus the world reserve currency and the looming prospect of a "trade war" between the US and China sounds familiar, it is and nauseatingly so. On June 30, 2005 a proposal to impose a 27.5% tariff on all Chinese goods was voted on in the US Senate with a resulting tally in favor of the measure of 67-33. At this point secretary of the Treasury John Snow and the Federal Reserve Chief Alan Greespan "assured" senators of Chinese plans to revise exchange rates and by July 21, 2005 Snow welcomed a senate measure to derail the proposed legislation with the Chinese instead floating a demand from the US Congress to "revaluate immediately" the Yuan 10% or face "contrary legislation". The Chinese, with the able lobbying of Snow and Greenspan, outmaneuvered the congressional request by immediately embarking on a 2.1% revaluation followed by, well...nothing. The 2005 G-8 summit in Scotland produced only a deafening silence on the issue solidifying the Chinese position and when the IMF, responding to a US appeal to the WTO for arbitration, ruled that the Renminbi was not undervalued, the whole issue was quite unceremoniously mothballed. The sovereign interests of the US Congress through the agency of its own Treasury secretary and the head of the Federal Reserve had been effectively overruled by the WTO, the IMF and not lastly the Chinese themselves. This was largely due to an agreement by the US Treasury to enter into consultation with the IMF as stipulated by OTCA 188 to determine whether foreign currency manipulation was taking place and if so what effective actions to take regarding Balance of Payments and unfair trade advantages due to an undervalued currency.

  23. I'm thinking about putting some gold into my mom's IRA, do you think now is a good time to buy?

  24. yes. buy some every month for the next 6 months regardless of what the press does