Minyan Mailbag: Dollars, Gold and Credit Correction
I LOVE GOOOOOLLD!!
Editor's note: Be sure to participate in the Minyanville/Ruby Peck Foundation gold coin auction to invest in a piece of history and a child's future.
In the last few months the dollar and gold have been rallying together. Much has been made about gold rallying in all currencies, an ingredient for a true bull market in gold. Maybe the rally in gold/xau/hui in the past two months is anticipating a weaker dollar down the road, but maybe it's also discounting a bear market in equities as well or your big picture stuff happening sooner rather than later.
I think you are on the right track. And that track is important in understanding what is going on.
Gold is rallying against every currency as a function of a coordinated effort by several central banks that are printing money. It is almost like the Fed calling the BOJ every night and checking on how much each has printed. Central banks are desperate to reflate and keep deflation at bay. Of course all this printing does is raise the price of real assets like gold and silver, other commodities like oil and copper, real estate, and even stocks. Bonds are in their own little world: they should be worried about all this printing, but right now are just as worried about deflation and therefore the liquidity is supporting prices.
In the end I do not believe all this printing will save the situation and is only delaying the inevitable: a credit correction. That correction will be nastier the more central banks try to delay it.
Ironically, the dollar is a little stronger therefore now relative to other currencies because so much of the world's debt is denominated in dollars. As our short term interest rates rise, it puts more pressure on debt holders to re-pay and they need dollars to do this.
I believe this is only a temporary phenomenon. The dollar will weaken dramatically sometime in the future once future demand for our debt wanes.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter