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Precious Metals Benefit From a Shift in Currencies

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No market can move straight up even if fundamentals are positive as is the case with gold and silver.

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We recall with some nostalgia that it was last year on September 6 that gold hit an all-time high of $1,923. This, of course, reminds us that a month before that, the credit agency Standard & Poor's stripped the United States of its AAA rating on its bonds after partisan wrangling over raising the government's debt limit led the nation to the brink of default. And now in addition to nostalgia, we get a feeling of déjà vu. The US recently received another warning of a credit downgrade, this time from Moody's Investors Service. The credit agency said last Tuesday that it would most likely cut its AAA rating on United States government debt, probably by one notch, if Washington's budget negotiations failed. This does not bode well for the US dollar in the long run.

Let's move to the situation in Europe. When George Soros speaks, people usually listen. Soros is a strong supporter of European integration, but a longtime critic of Germany's eurozone crisis management. In his usual forthright manner, Soros recently said in a speech that Europe's recession will intensify and spread to Germany within six months:

"The policy of fiscal retrenchment in the midst of rising unemployment is pro-cyclical and pushing Europe into a deeper and longer depression," Soros said. "That is no longer a forecast; it is an observation. The German public doesn't yet feel it and doesn't quite believe it. But it is all too real in the periphery and it will reach Germany in the next six months or so."

Soros said Germany needs to abandon its demands for austerity in other countries and embrace the continued fiscal unification of the region or leave the eurozone itself. (Recently, German politicians, led by Chancellor Angela Merkel, have begun signaling greater comfort with monetary debasement.) Soros also said it would be preferable for Germany to stay in the eurozone and work to boost growth, activate a debt-reduction fund, and guarantee common bonds.
No positions in stocks mentioned.
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