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Peter Schiff Explains What Currency War Will Mean For Gold

Tyler Durden's picture





 

From Peter Schiff's Gold Report

The Currency War - Good For Gold

As the world awaits another $500 billion flood from Bernanke's printing press, central bank governors from Brasília to Tokyo are preparing to respond in kind. This is the monetary equivalent of a nuclear war, except instead of radiation, bombs of inflation threaten to make the world economy uninhabitable for saving and productive enterprise.

While much of the attention has been focused on China and accusations that it is a "currency manipulator," the first shot in this war was clearly fired by the US Federal Reserve. Last month, the Fed came out with a statement that, for the first time ever, said inflation is rising at a rate "below its mandate." That is, they acknowledged that the deflation threat had passed, that prices were stable - but they still intended to send prices higher.

Since the Bretton Woods Agreement was signed in the wake of World War II, the global monetary system has been based on the US dollar. This means that when the Fed decides to create trillions of dollars of inflation, other countries can't simply say, "let them dig their own grave." Instead, because their international transactions are denominated in dollars, they feel a pressure to maintain relatively stable exchange rates between their currencies and the dollar.

Most countries do this informally and have their own (bad) reasons for maintaining a certain level of inflation. China, however, is more literal in its devotion to the dollar system, perhaps due to its psychology as a new arrival on the world stage. So, in recent history, the People's Bank of China has largely maintained a "peg," by which it currently offers to pay 6.8 RMB for every dollar deposited, no matter how many extra dollars the Fed prints. To put it another way, China, and to a certain extent the entire world, is on a Dollar Standard -- like the Gold Standard, but based on another fiat currency instead of a precious metal.

What this also means is that China does not intentionally devalue its currency against the dollar, but only to keep pace with the dollar. Chinese Commerce Minister Chen Deming said as much in an interview on October 26: "Uncontrolled" issuance of dollars is "bringing China the shock of imported inflation." Most emerging markets are the same way. In order to prevent rapid economic dislocations, and often to appease their powerful export lobbies, these countries seek to maintain a status quo versus the dollar - whether through inflation as with China or capital controls as with Brazil and South Korea, or both.

In short, the currency war is really just the rest of the world trying to shield itself from a barrage of nuclear dollars.

The end result is that the entire civilized world is locked in a race to inflate, and no fiat currency is truly safe. In my brokerage business, I advise clients to buy companies - not currencies - in countries that I believe will thrive in the war's aftermath. China could dump the peg tomorrow and, after a period of adjustment and write-offs, would continue to grow apace. The UK, on the other hand, is happy to be locked in a competitive devaluation as it helps the government avoid imminent default while it puts through budget reforms. But regardless of their strategic positions, all major central banks will likely engage in some money printing to keep their currencies level with the rapidly devaluing US dollar - until the greenback loses its reserve status. (This may happen sooner than later, if an agreement this month between China and Turkey to stop using dollars in their transactions is any indication.)

As the Fed seeks to blow up the global monetary system, I take comfort in the fact that gold cannot fight a currency war because it is not a currency. Gold is money. Currencies used to be backed by money until the global fiat system was introduced under President Nixon. Fiat currency can be printed at will until the economy collapses, as has happened many times in history. Money is impossible to devalue at the whim of politicians because it is naturally scarce. Even in the ruins of Europe after the Second World War, when there was no central authority and chaos reigned, an ounce of gold was worth what it always had been.

If we are witnessing a fight to the death among fiat currencies, then gold is surely the Red Cross - a peaceful arbiter and source of mercy for our accumulated savings. While I do believe that life will go on after this war, as with all others, the thought of the world's savers all hiding their assets safely in gold brings to mind the old question: What if they gave a war and nobody came?

 


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Mon, 11/08/2010 - 12:25 | Link to Comment Anal Picnic
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I'll start buying dollars when the paper they are printed on is worth their face value.

Mon, 11/08/2010 - 12:42 | Link to Comment tired1
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Anyone have insights as to how Russia will be affected. Read lask week that China/Russia were seeking to trade directly with their own currencies.

Mon, 11/08/2010 - 14:31 | Link to Comment Charley
Charley's picture

Debasing currency from gold was the first form of QE. Gold allowed a floor to be put under interest rates because, while it didn't pay interest, even in the form of a hoard it carried an effective interest rate of zero. Debasing the currency allowed government to impose negative real interest rates on savers. These savers were then forced to loan their money to Washington as the next least risky form of savings wioth at least a zero rate of interest.

The current round of QE is doing the same for savers who hold their savings in the near money form of treasuries. Buying up the treasuries allows Washington to place an effective negative interest rate on them. Savers will be moved out of US treasuries and into other-government debt -- see China in Portugal. The point is to force China to save in riskier assets. If inflation rises, these riskier forms of debt will be squeezed.

Although no one will admit this, in post-war economic theory, savers are the problem...

Mon, 11/08/2010 - 14:38 | Link to Comment Charley
Charley's picture

Of course, when the savers are national entities, we call them mercantilists... i.e., China, Japan, Germany, etc...

Mon, 11/08/2010 - 16:08 | Link to Comment DosZap
DosZap's picture

"Although no one will admit this, in post-war economic theory, savers are the problem..."

No ain't dat a biatch?.

The RESPONSIBLE humans are the problem.

Who would have thought,doing,living a proper quiet, and fiscally responsible lifestyle would cause you to be the cause of the FIAT systems destruction.

Bullshit................it's a the same slimy,greedy, theiving SOB's that have been the issue since the dawn of time.

Mon, 11/08/2010 - 12:31 | Link to Comment jellydonut
jellydonut's picture

What about silver?

Mon, 11/08/2010 - 12:34 | Link to Comment Ragnarok
Ragnarok's picture

It will return to its historic exchange rate with gold of ~15-20:1.

Mon, 11/08/2010 - 16:26 | Link to Comment BigJim
BigJim's picture

That is the usual ratio given for silver:gold in the earth's crust.

But given that silver is used up in industrial applications, and gold isn't (virtually all the gold ever mined is still in usable existence, whereas most of the silver ever mined is to all intents and purposes gone forever) it's quite possible that the ratio will be even lower.

Mon, 11/08/2010 - 15:13 | Link to Comment masterinchancery
masterinchancery's picture

Particularly since the very limited world supply of gold will be under heavy pressure if gold starts to be acquired by the masses.

Mon, 11/08/2010 - 12:33 | Link to Comment Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

silver is doing nicely, thank you.

SLW has been really nice to me lately, can't imagine it has anything to do with POMO /sarc/

Mon, 11/08/2010 - 13:02 | Link to Comment Cruel Aid
Cruel Aid's picture

Well understated.

Mon, 11/08/2010 - 16:27 | Link to Comment SWRichmond
SWRichmond's picture

I am also loving my SLW.  Oh, and BTW, HL is up a buck as I write this.  12.6%.  Today, bitches.  Wanna know how many shares I own?  Muahahahaha.

Mon, 11/08/2010 - 12:34 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

"Even in the ruins of Europe after the Second World War, when there was no central authority and chaos reigned, an ounce of gold was worth what it always had been."

Yeah, and real estate always goes up in value. 

Mon, 11/08/2010 - 12:36 | Link to Comment EscapeKey
EscapeKey's picture

Constant exponential growth != static value.

Mon, 11/08/2010 - 13:03 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

What in the world are you talking about?

Mon, 11/08/2010 - 13:08 | Link to Comment EscapeKey
EscapeKey's picture

Peter Schiff is talking about an ounce of gold retaining its value. You are equating that to house prices always rising = perpetual exponential price development.

Those are not the same.

Mon, 11/08/2010 - 13:23 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

No, what I'm talking about is that neither gold nor houses "retain" value because they're valued in an evolving marketplace. They don't have any value other than the value people assign to them.

Schiff is just another Wall Streeter talking his book.

Mon, 11/08/2010 - 13:48 | Link to Comment redpill
redpill's picture

Did he run for Senate just to "talk his book" too?

Comparing the real estate bubble to the current gold price demonstrates a complete misunderstanding of the role of gold through much of human history.

 

Mon, 11/08/2010 - 14:00 | Link to Comment Eman Laer
Eman Laer's picture

 

No, what I'm talking about is that neither gold nor houses "retain" value because they're valued in an evolving marketplace. They don't have any value other than the value people assign to them.

You could also say that food doesn't "have any value other than the value people assign to them". 

Schiff is just another Wall Streeter talking his book.

I think you don't know much about Peter Schiff.

 

Mon, 11/08/2010 - 20:29 | Link to Comment medicalstudent
medicalstudent's picture

i would have thought the people who disagree with peter schiff would not have survived this far in evolutionary time.

 

i would have been wrong today.

 

but what about tomorrow?

Mon, 11/08/2010 - 14:21 | Link to Comment 7againstThebes
7againstThebes's picture

   <i>They don't have any value other than the value people assign to them.</i>

Of course. "...tis nothing good nor bad but thinking make it so."  The value of an ounze of gold goes up and down all the time.  Schiff's point is that the price of gold is not vulnerable to the schemes of politicians. On the other hand, the price of gold is extremely sensitive to the actions of politicians, which is a bit of a paradox.  Gold can't be bossed around, which is why it is not liked by political authority.

Mon, 11/08/2010 - 14:27 | Link to Comment goldsaver
goldsaver's picture

Ah, but grasshopper, is gold's price volatile because gold is volatile? Or is the price volatile because fiat is volatile? There are two sides to every exchange. You must not limit your analysis to a single side.

The value of an ounce of gold, as compared with goods/services/products (purchasing power) has been stable for thousands of years. It is the value of the fiat that has changed.

Mon, 11/08/2010 - 16:33 | Link to Comment Absinthe Minded
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Bingo! I think we have Bingo here!

Mon, 11/08/2010 - 15:16 | Link to Comment masterinchancery
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gold is an efficient, low-cost store of value without significant carrying costs. Real estate is a consumer good with very high carrying costs and great exposure to confiscation in most societies. No comparison.

Mon, 11/08/2010 - 15:42 | Link to Comment Bill Lumbergh
Bill Lumbergh's picture

Any money manager who publishes or interviews talks their book by default...why would you expect someone to espouse a certain belief system and invest their funds in a noncongruent manner?

Mon, 11/08/2010 - 14:34 | Link to Comment Charley
Charley's picture

In the ruins of Europe there was a shortage of everything. Now, there is surplus productive capacity in everything. This is not post-war Europe! Make money by understanding the real -- not wishful -- situation.

Mon, 11/08/2010 - 12:34 | Link to Comment lolmao500
lolmao500's picture

I don't have gold. Know why? I prefer have years of food, ammo and guns then gold.

Mon, 11/08/2010 - 12:52 | Link to Comment goldsaver
goldsaver's picture

They are not mutually exclusive, I hold both. It is called diversification. I have a year worth of staples (sugar, grain, salt, rice, beans, etc), a side/long arm for every family member, 1k rounds of ammo per firearm. Water filtration and first aid kits. I also have gold and silver. Why? There are 3 possible outcomes in the current FUBAR environment.

1. Slow stagnation. Think Carter years or Japan. In that case, violent crime will rise due to anger, opportunity and hunger. Foodstuffs will be available, but at a much higher price. Unemployment is a very likely possibility. Under that scenario, food is stored to feed my family and sidearms would be necessary. PMs can be slowly sold for inflated dollars to buy necessities in case of unemployment.

2. Temporary hyperinflation / market disruption. Several months of empty shelves, no money available for purchases and rioting in the streets until a new currency is issued. Again, beans, bullets and band-aids very useful in this case. Gold and silver would serve as a bridge to safeguard my wealth until the new currency is issued and as a monetary unit to purchase things that I might not have thought of, pay for services I might need (dental work or mechanical work in cars, etc) and as a means to purchase BK property for farming or production after the collapse.

3. Mad Max. All of the above plus PMs would be useful for safe passage out of the country. Airplane tickets, bribes, etc. Start over elsewhere.

Mon, 11/08/2010 - 13:13 | Link to Comment TradingJoe
TradingJoe's picture

Man, I cannot but love this insane fatalism, where the heck is it coming from?!

Mon, 11/08/2010 - 13:32 | Link to Comment Rich V
Rich V's picture

 

 

The daily news headlines?

Mon, 11/08/2010 - 15:20 | Link to Comment masterinchancery
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Well put. Gold and silver provide protection against the black as well as the grey Swan event.

Mon, 11/08/2010 - 17:06 | Link to Comment redpill
redpill's picture

Exactly.  The reason I own physical gold and silver is not because I know what is going to happen, rather I own it because I don't.

Mon, 11/08/2010 - 12:57 | Link to Comment Obama2012
Obama2012's picture

i dont have gold because i have faith in our leadership. you people are crazy if you think the world is going to end or the dollar is going to die. we have the best military stationed in all the right places. as much as you people hate obama because he's not like you at least he's keeping america's priorities straight. stop letting poor people suffer at the hands of the rich, promote education and healthcare, secure resources. things are finally back on track

Mon, 11/08/2010 - 13:04 | Link to Comment -Michelle-
-Michelle-'s picture

You are quite the skilled satirist.  Not capitalizing your letters is a fine touch.

Mon, 11/08/2010 - 16:41 | Link to Comment Absinthe Minded
Absinthe Minded's picture

Is satirist synonymous with assclown? This guy is the administrations wet dream, another dolt watching CNN not even realizing our dollar is going right down the shitter! Wake up! Gold isn't in a bubble, FRN's are in a tailspin. Guess who has all the parachutes?

Mon, 11/08/2010 - 16:56 | Link to Comment -Michelle-
-Michelle-'s picture

Just giving him the benefit of the doubt.  I prefer not to think that anyone could actually be so willfully ignorant.

Mon, 11/08/2010 - 13:09 | Link to Comment goldsaver
goldsaver's picture

Wow, really? I must have missed the /sarcasm tag, please try again.

If you are serious, welcome to reality. You must choose between the red pill or the blue pill, the choice is yours. If you choose the red pill we can only show you how deep the rabbit hole goes, nothing else. What you do is up to you. Stick around a few weeks. Read daily what is been said in these pages. Then ask yourself, if I prepare for a disaster what is the worst that can happen? Food can be eaten, ammo shot at the range and PMs can be sold at a profit. But if you don't prepare and we are right, what will happen to you and your family?

Are you ready to trust your life to the same FEMA that ran post Katrina ops? Or the same leadership that dealt so efficiently with the BP oil spill? Would you trust the people at the DMV with your life?

Mon, 11/08/2010 - 13:17 | Link to Comment Obama2012
Obama2012's picture

you know how many times i've heard about the end of the world in my life? know how many times it's happened? exactly

you people need to chill out, theres been enough senseless death in the past due to doomsday cults. if thats really your thought why are you on the internet? go buy some purple nikes and build a cabin in the woods

Mon, 11/08/2010 - 13:28 | Link to Comment SilverIsKing
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Obama2012: "you know how many times i've heard about the end of the world in my life? know how many times it's happened?"

SilverIsKing: "do you know how many times the end of the world happens?"

Mon, 11/08/2010 - 13:32 | Link to Comment DaveyJones
DaveyJones's picture

you're right, it will never happen to us because we're different, and we have a big army and a big strong government. History has no examples. "/

Mon, 11/08/2010 - 13:41 | Link to Comment goldsaver
goldsaver's picture

Wow, you are serious. Why do you frame reality to your lifetime? Did civilization not exist before your birth?

OK, first lets define couple of things. TEOTWAWKI is different for every person. Mad Max might happen, eventually, but it might not. So lets look at other possibly disruptive events that would impact you life and decide, are you ready for them?

Do you live in a flood area? Do you have sand bags just in case?

Do you live is a hurricane area? Do you have a generator, food and water, some candles stashed in a drawer, just in case?

Could you loose your job and be unemployed for 6 moths? Do you have a bit of savings to tie you over?

The end of economic world has happened many times in the past. Wiemar, Chile, Argentina, Zimbabwe are some recent examples. Here in this country we have gone thru the dust bowl era, soup lines, the seventies inflation. Are you so dense that you do not believe that either of those could happen here? Do you believe that our government is much more efficient than the governments of Germany post WWI, Chile and Argentina?

Every empire fails. Phoenician, Greek, Roman, Egyptian, Ottoman, British, French and the US. Always painfully and with great disruption. Are you ready for it?

Do you truly believe that disruptions to the supply chain are impossible? That oil can not go to $300 a gallon? That fiat currencies can and always do fail?

We are not a doomsday cult. Quite the opposite. We refuse to drink the kool aid. We are not here to wait for the end so we can die. We are preparing to live and prosper.

Warning, I (since I would not presume to speak for others here) will not feed you, clothe you or shelter you. I will try to teach you how to fish. If you don't do it, you starve.

Mon, 11/08/2010 - 13:56 | Link to Comment DocLogo
DocLogo's picture

There's a big difference between "the end of the world" and the end of a world order. World orders fall and collapse all through history. Italian people still exist. The Romans, however, are no more. I think the sentiment here on this site is preparing oneself for the transition from dying empire to what comes next. We all know the world will be here for billions of more years...it's us we are worried about.

Mon, 11/08/2010 - 13:39 | Link to Comment quasimodo
quasimodo's picture

Why bother? He/she has most likely took a lethal dose of kewl aid at this juncture

Mon, 11/08/2010 - 13:26 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

promote education and healthcare, secure resources

 

Education for what ? How to stack boxes at walmart,target and the debt you take on for the education ... ugggg, how about a long term focus on job growth in the u.s.a and not giving out hand jobs in india ....

Obamacare = Business albatross ...

Securing resources ? The trillions he has spent has secured inflation in food,oil, ect ...

His trillions are used prop'n up fail'd assets for the banks.

Mon, 11/08/2010 - 21:25 | Link to Comment StychoKiller
StychoKiller's picture

Dontcha just love how the Govt always comes up with these nifty programs to "help" us with our problems?  They're so nifty in fact, that the Govt is gonna make them MANDATORY, because no one in their right mind should be deprived of the program's usefulness by making it voluntary!  What a crock!

Mon, 11/08/2010 - 13:47 | Link to Comment mtomato2
mtomato2's picture

Everybody relax.

This assclown has been around less than two weeks.

 

"Look what I found, mommy!  Can I keep him?"  "No, child, not unless you want to clean up after him..."

 

Mon, 11/08/2010 - 13:50 | Link to Comment digalert
digalert's picture

"i have faith in our leadership"

Thanks, I needed a good laugh today. In fact, why don't you put your faith right where you keep your hope and change stash.

Mon, 11/08/2010 - 21:26 | Link to Comment StychoKiller
StychoKiller's picture

I too have faith, in fact I have certainty:  The Govt WILL ALWAYS come up with a way to make my life MORE MISERABLE!

Mon, 11/08/2010 - 15:21 | Link to Comment masterinchancery
masterinchancery's picture

Delusional.

Mon, 11/08/2010 - 15:32 | Link to Comment ThreeTrees
ThreeTrees's picture

It's a good thing this is a comment thread on the internet, cuz if you had to speak that big statist dick in your mouth would make you unintelligible.

Mon, 11/08/2010 - 16:16 | Link to Comment DosZap
DosZap's picture

You of course have the right to be here, and speak just like anyone else.

You also have the right to be 100% wrong, which you are.

It's kind of like cutting someones throat, ear to ear......

They cannot believe whats happening, even as it's being done.

But, the end result is the loss of life.

We have no leadership......................NONE.

The best leaders we have are on this site, and in our Military.

The 10sq mile block you trust,is the most evil 10sq miles on this planet.

Mon, 11/08/2010 - 12:59 | Link to Comment spartan117
spartan117's picture

Try carrying all that food with you when you need to leave.

When the South Vietnemese needed to flee their country after the North had won the war, they used GOLD to buy their way onto departing vessels to the west.  I doubt the captains of those ships accepted MREs. 

Mon, 11/08/2010 - 13:00 | Link to Comment shortus cynicus
shortus cynicus's picture

your logic is absolutely correct: it is much wiser to accumulate guns and in a need just kill someone who accumulated gold. P/E ratio is much bigger. But it doesn't work well in some countries, take Switzerland as example. Here is one historical note: http://en.wikipedia.org/wiki/Swiss_mercenaries

 

Mon, 11/08/2010 - 13:14 | Link to Comment goldsaver
goldsaver's picture

Good call. Sucks that I shoot back though.

 

Mon, 11/08/2010 - 13:32 | Link to Comment SilverIsKing
SilverIsKing's picture

What you meant to say is, "Sucks that I shoot first though."

Mon, 11/08/2010 - 13:47 | Link to Comment goldsaver
goldsaver's picture

Thank you for fixing it ;-)

Mon, 11/08/2010 - 13:16 | Link to Comment Aristarchan
Aristarchan's picture

Very efficient business plan. In a total breakdown, those with the means and the will to use them can take what they need and prevent others from taking their stuff.

Mon, 11/08/2010 - 12:36 | Link to Comment treemagnet
treemagnet's picture

Anybody have a thought here - whats the best gold stock thats actually backed by gold?  I've read some critiques of sprott, any ideas out there?

Mon, 11/08/2010 - 12:50 | Link to Comment haskelslocal
haskelslocal's picture

Fiat money is only money because God says so...

As is gold only money because someone says so.  Is rock truly greater than paper?  

The next "new money" will be Oxycontin. Procure yourself a drug store.

Mon, 11/08/2010 - 12:55 | Link to Comment goldsaver
goldsaver's picture

Wow, did you get that one backwards skippy.

Gold is money because it has been money in every civilization for six thousand years.

Fiat is money because the government said so.

Every fiat dies. Gold is always gold.

Mon, 11/08/2010 - 13:07 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

And zinc is always zinc.

And nickel is always nickel.

And copper is always copper.

Why, even a child could understand it.

Gold to $1700.

Mon, 11/08/2010 - 13:51 | Link to Comment mtomato2
mtomato2's picture

"..Skippy..."

 

heh.

Mon, 11/08/2010 - 12:53 | Link to Comment Aristarchan
Aristarchan's picture

 

BEIJING, Nov. 8 (Xinhuanet) -- Seigniorage is a very old-fashioned word making a sudden reappearance in the modern world. It follows close on the heels by the confirmation announcement that the second round of quantitative easing in the United States would proceed.

Seigniorage describes the situation where a government makes a profit through the increase in the amount of money in circulation. It happens when the government prints more money and then uses that money to buy its own debt - issued as bonds or treasuries. Then the government pays itself interest on the debt.

Seigniorage became a real issue just under a century ago in Germany during the period between 1919 and 1923. The Weimar government ran large budget deficits to fund the war reparations debt - the same debt that was finally paid off in full less than a month ago. The Weimar government in Germany kept interest rates far below inflation, expanded the money supply rapidly and raised 50 percent of government spending through seigniorage. Increasingly, investors and others fear the US is moving down the same path with an aggressive policy of reducing the value of the US dollar which will lead to domestic inflation.

One of the core problems of the US economic crisis is the mismatch between fiscal value and asset value. Generally there are two ways to bring these two values together. They are through the exchange rate mechanism or through currency debasement. The US is starting the electronic version of the printing presses so people will have cash to pay off the credit binge the US has been on for decades. Printing money on this scale is inflationary, and is potentially hyper-inflationary. This debases the currency.

The US is funding the budget deficit through seigniorage. In the United States, the Federal Reserve (Fed) is buying $75 billion worth of US Treasury bonds a month up to a total of $600 billion. The shift to gold is not just as a protection against a falling US dollar, but it is also an inflation hedge against the consequences of seigniorage.

Without doubt this will re-flate the US economy and the rise in the Dow Jones Industrial Average confirms this, but the cost to other economies may be substantial. The US market has cheered the Treasury plan, but movement in the US dollar index and gold tell a different story as frightened money takes an exit.

The first issue is to decide how far the dollar can fall before it finds support. The second question is to identify the barriers the dollar must overcome before it can rise.

The weekly chart of the US Dollar Index against a basket of currencies shows strong historical support is located near $0.745. This marked the low point for the dollar in 2009 October. This support level is the upper edge of a wide trading consolidation band. The lower edge of this band is near $0.715. This low level consolidation was reached between March and August in 2008. A fall below $0.745 has a downside support target near $0.715. In this situation after the fall the strong resistance level is located at the old support level near $0.745. The historical behavior of the Dollar Index suggests a move below $0.745 could lead to several months of rally and retreat behaviour between $0.715 and $0.745.

The Dollar Index has developed a fan pattern. This is defined by an upper and a lower trend line. The lower trend line acts as a support level and allows the dollar to slide down this line towards the next horizontal support level, currently near $0.745. The upper trend line acts as a resistance level with a current value near $0.78. A sustainable rebound in dollar strength is shown only when the Dollar Index is able to move above $0.78 and also break above the historical resistance near $0.795.

The probability of a strong dollar rebound is low and the trend suggests there is a high probability of a fall below $0.745. This consistent dollar weakness will be reflected in other currencies and will support a continued rise in the price of gold. A sustained debasement of the US dollar does not provide a structural solution to the problems of the US economy. The already low dollar has not translated into a significant increase in US exports and domestic demand can only be stimulated by more credit spending. The strong downtrend suggests support at $0.74.5 will not be successful.

Intentionally or not, many see the US Dollar Index chart echoing with the first shot of a currency war.

 (Source: China Daily)

Mon, 11/08/2010 - 21:32 | Link to Comment StychoKiller
StychoKiller's picture

Apparently, the dollar index is not the only determining factor for the price of Gold -- both moved up today! (Gold over $1405)

Mon, 11/08/2010 - 12:57 | Link to Comment EscapeKey
EscapeKey's picture

Gold just passed $1,400 (, bitches!)

 

Mon, 11/08/2010 - 13:11 | Link to Comment NationalizeTheFED
NationalizeTheFED's picture

rock on! silver is going through the roof as well!

Mon, 11/08/2010 - 13:32 | Link to Comment Aristarchan
Aristarchan's picture

That is good to hear! The only gold I own is a Rolex watch and a Thai Bhat chain. I did however, inherit a large amount of silver - mainly in the form of vases, samovars and dish sets - and a whole lot of uncut gems. Nearly all of it was purchased back in the early '60's in the Middle East...not sure how much it is worth.

Mon, 11/08/2010 - 12:57 | Link to Comment RobD
RobD's picture

1400/27++ Baby!

Mon, 11/08/2010 - 12:58 | Link to Comment Clapham Junction
Clapham Junction's picture

Nice to hear an opinion from someone without a conflict of interest.

How many of these sales people do we have to endure?

Mon, 11/08/2010 - 13:06 | Link to Comment zaknick
zaknick's picture

Not even particularly insightful either.... bleh

Mon, 11/08/2010 - 13:09 | Link to Comment EscapeKey
EscapeKey's picture

Schiff's been saying this for years.

 

Mon, 11/08/2010 - 13:13 | Link to Comment NationalizeTheFED
NationalizeTheFED's picture

"What if they gave a war and nobody came?"

 

good point! So the "barbaric" metal is actually the metal of peace!

Mon, 11/08/2010 - 08:13 | Link to Comment MatrixSurfer
MatrixSurfer's picture

Well, heres what bugs me.  I have been involved in the markets professionally since 1994, and virtually every time EVERYONE is on one side of an issue, its time to go contrarian.  My head tells me there is no alternative to a destroyed USD with the current policy, but my instincts are on alert for some reason, and a few days ago I have actually bought some UUP (for a short-term play) just because so many are certain it is doomed.  I know, I know....but I just hate stampeding with the crowd while it goes over the cliff.  Most here are happy imagining massive fed manipulation of all markets, (myself included), well, is it in the feds interest to devalue and/or destroy the only thing they can issue with wreckless abandon?  Can't they just as easily have a hand in manipulating the dollar as the bond market?  I admit to feeling a little thick this morning; someone, (anyone) out there much smarter than me care to comment? 

Mon, 11/08/2010 - 13:18 | Link to Comment goldsaver
goldsaver's picture

I will certainly not claim to be smarter than you. That is 142IQ's territory. But I think you are looking at it the wrong way. What percentage of investment capital in funds and 401Ks, etc are in gold and silver? What percentage is in stocks and bonds? I would say that PMs are the ultimate contrarian call.

Mon, 11/08/2010 - 13:21 | Link to Comment NationalizeTheFED
NationalizeTheFED's picture

IQ142? lol, this guy doesn't even understand the most basic things, but I guess this is normal for someone super-"intelligent".

Mon, 11/08/2010 - 13:49 | Link to Comment goldsaver
goldsaver's picture

Damn, I forgot my /sarcasm tag again!!

Mon, 11/08/2010 - 13:19 | Link to Comment NationalizeTheFED
NationalizeTheFED's picture

Your mistake is that you think that everyone is buying gold and other precious metals when that isn't the case at all. This is purely imaginary and just in your head. In the real world, only a small handful of people are actually buying precious metals, the vast majority of people have very few if any precious metals investments. Gold mania means that most of the financial news will focus on gold, and the stock market being almost irrelevant..you will hear people on the streets talking about gold, silver..and noone talking about stocks/real estates/bonds. THEN you will have to think about getting into something else.

Mon, 11/08/2010 - 13:21 | Link to Comment iota
iota's picture

As much as I've hated giving credibility to the foam mouthed conspiraloons, it all makes a little more sense when you start thinking of it all as serving the agenda of something supra-govermental.

Mon, 11/08/2010 - 13:24 | Link to Comment TradingJoe
TradingJoe's picture

I do love ZH and its poster but truth be told, ALL are in Gold or Silver, as greedy as the same people we condemn here! Means, all gold/silver holders want the dollar to go to hell so they can make a huge profit, but, what then...? Totally Ironic, eh? I am long PM's too but with a tight stop, I don't trust the FEDs at all, this is too much of a good thing with the QE2, my humble take is there will rather be a deflationary correction, let's call it crash, before any meaning full rally/leg higher can occur! I don't like this herd mentality, very dangerous! "Markets cheer $600B" forgetting what the consequences ARE! Too funny!

Mon, 11/08/2010 - 14:15 | Link to Comment goldsaver
goldsaver's picture

ALL are in Gold or Silver

I wouldn't presume to speak for others, but I suspect that not all posters in ZH are in PMs. I am. Would you not consider me a hypocrite or worse an idiot if I posted here but did not practice what I preach?

Means, all gold/silver holders want the dollar to go to hell so they can make a huge profit, but, what then...?

We rebuild our lives on the other side. BTW, if you are long paper PMs, you are not long PMs, you are long paper.

Mon, 11/08/2010 - 14:21 | Link to Comment tmosley
tmosley's picture

I hate to tell you, but you are long on the promises of proven liars and charlatans, not gold or silver.

If you don't hold it, you don't own it.

Mon, 11/08/2010 - 15:40 | Link to Comment Jean Valjean
Jean Valjean's picture

We don't want the dollar to collapse so we can make a HUGE PROFIT.  We want the dollar to collapse because it represents a flawed system and we are interested in TRUTH, LIGHT, HONESTY, FAIRNESS and JUSTICE.

Mon, 11/08/2010 - 20:34 | Link to Comment medicalstudent
medicalstudent's picture

i would happily lose all my precious money so i can keep my quality of life where it is.

 

if us holders get nominally rich it will be because everyone else will get poor.

 

get real.

 

the silver price is the apocalyptometer.

Mon, 11/08/2010 - 13:15 | Link to Comment iota
iota's picture

As an aside, I think the USD/CHF-AG/AU correlation might have decided to take the scenic route today.

*kicks self*

Mon, 11/08/2010 - 14:42 | Link to Comment Big Corked Boots
Big Corked Boots's picture

+1

related lesson: when things are going to blow, they will blow very fast.

 

Mon, 11/08/2010 - 13:35 | Link to Comment Gordon Freeman
Gordon Freeman's picture

PM/commodities can have a long bull market, the dollar can collapse, gas go to $10/gallon, etc. all without the absurd breakdown of social order being predicted here.

All the gun-totin', ammo stockin', wannabe Rambos here had better remember that the first time they shoot their neighbor because their paranoia finally gets the better of them, it's going to be the last shooting they ever do.  So go ahead--make their day...

Mon, 11/08/2010 - 13:44 | Link to Comment Aristarchan
Aristarchan's picture

Ok...Ok...how about just a little flesh wound?

Mon, 11/08/2010 - 13:52 | Link to Comment goldsaver
goldsaver's picture

- but you have no arms!

- Is only a flesh wound

Mon, 11/08/2010 - 14:09 | Link to Comment goldsaver
goldsaver's picture

all without the absurd breakdown of social order being predicted here.

 

You do know we riot when our favorite sports team wins right? L.A. riots (Rodney King), Katrina, etc, etc

What do you think will happen when people go hungry and can not buy food? You think we will be as calm as a Hindu cow?

If you are serious and curious, I could post more discussing how it is very likely to happen.

Mon, 11/08/2010 - 16:08 | Link to Comment Calmyourself
Calmyourself's picture

"If you are serious and curious, I could post more discussing how it is very likely to happen."

I am agnostic here not because I do not understand your point and mostly agree, but because the Government will clamp down hard and quick.  The response to the riots you mention above were half-hearted.  Sure the cops had some fun with rubber bullets and such but no real serious measures were taken.

Mon, 11/08/2010 - 13:45 | Link to Comment Jrsurf00
Jrsurf00's picture

Though I agree with your forecasts for gold resulting from the current and inevitable currency manipulation by governments surrounding the globe, i find it conflicting to rigidly label gold as "money". It is a little too mercantilist for my taste; I am of the belief that wealth creation does exist and that there isnt just a geographical shift of wealth that takes place in global markets. 

 

that said, i appreciate your analysis

Mon, 11/08/2010 - 14:18 | Link to Comment goldsaver
goldsaver's picture

Your taste or mine are immaterial in the context of 6000 years of history. In every civilization and in every continent, gold has been money.

Wealth creation is not impossible when gold is money. The greatest wealth expansion in the US happened between the War of 1812 and the creation of the federal reserve (discounting the interruption known as the Civil War). Gold was money in those days. Gold is money today.

Mon, 11/08/2010 - 14:31 | Link to Comment Temporalist
Temporalist's picture

I agree with you one doesn't "need" gold it just facilitates transactions between individuals.  There are cultures that still exist without precious metals or "money" at all.  And as long as one has "capital", intellectual or physical or abstract, that someone sees as valuable they can barter for anything. 

Gold, silver, copper, they are simple and humans are simple that is why PMs are historically money.

Mon, 11/08/2010 - 14:10 | Link to Comment Temporalist
Temporalist's picture

Oooo Bloomberg just said the dreaded D word...dollar and gold are decoupling.

"“Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy.

Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,”

Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”"

http://www.nysun.com/editorials/greenspans-warning-on-gold/87080/

 

"the former Federal Reserve chairman noted that the economy was foundering under "a heavy weight of uncertainty" that government stimulus has failed thus far to soothe, and advocated tax hikes as a means of "lifting this pall." "I think that we have got a fiscal situation in which if we don't curtail it quickly, we're going to have very grave problems ahead," he said. "I just can't visualize how we're going to get to next February with the budget we have. We have essentially put on the books a level of commitment which I don't think we physically can bear.""

http://nymag.com/daily/intel/2010/09/alan_greenspan_scares_suits_at.html

Mon, 11/08/2010 - 14:50 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

Yeah lets peg everything to gold, great idea... its not so volatile! since 2000 weekly price moves have been almost twice that of the yen/$! Yes lets peg the lot to gold and really find out how fucked we are.

Mon, 11/08/2010 - 15:10 | Link to Comment goldsaver
goldsaver's picture

Well, I guess you showed us. After all, fiat currencies do not change in price and there is no need to track them by the minute with a stock ticker... oh wait.

Mon, 11/08/2010 - 15:43 | Link to Comment Jean Valjean
Jean Valjean's picture

No, let's not, that way we can just remain fucked.

Mon, 11/08/2010 - 15:58 | Link to Comment Tortfeasor
Tortfeasor's picture

Pricing dollars in terms of yen is like pricing dog shit in terms of cat shit.

Mon, 11/08/2010 - 15:03 | Link to Comment MiningJunkie
MiningJunkie's picture

Ain't no fever like gold fever...

Mon, 11/08/2010 - 15:33 | Link to Comment Rob Jones
Rob Jones's picture

From the end of WW2 until 1971, the reserve currency was the dollar which was paper gold because the US had promised to redeem dollars for gold at a fixed rate of $35 per ounce (for foreigners). Then Nixon closed the gold window and the Nixon, Ford, and Carter administrations began seriously devaluing the dollar by inflation. So it is difficult to understand how the dollar was able to retain its status as reserve currency. The most sensible thing would have been to switch to physical gold as a reserve currency. But central banks hate gold and so somehow the dollar was able to hang on as a reserve currency. But I suspect that by the early 80's, the dollar's status as reserve currency was in serious jeopardy. No one wants to hold a currency which is rapidly  decreasing in value. Probably it was only because the US was able to bring inflation under control that a switch was not made. Also, US real interest rates were high in the 80's and the US stock market took off. So then people were happy to hold dollars and were once again happy to use the dollar as a reserve currency.

Contrast that to the current situation where dollar interest rates are very low, the US stock market has been flat for a decade, and the Fed is threatening to print lots of new dollars as part of QE2,3,4 ... Also, China, Russia, and nations in the middle east are hostile to the US and would really prefer to use something besides the dollar as a reserve currency. So I suspect that the dollar's status as reserve currency is once again in serious jeopardy. The dollar is dead. Long live gold.

 

Mon, 11/08/2010 - 16:49 | Link to Comment BigJim
BigJim's picture

"So it is difficult to understand how the dollar was able to retain its status as reserve currency."

In the 70's, the US persuaded OPEC to price their oil in US$ if the US guaranteed their security: http://www.lewrockwell.com/paul/paul303.html

Mon, 11/08/2010 - 17:51 | Link to Comment Rob Jones
Rob Jones's picture

I think you have a good point!

But going forward, I wonder how much a US security guarantee will be worth once Iran has nukes. After all, one primitive nuke mounted on a primitive missile can take out an aircraft carrier. We seem to be heading into a brave new world where US military strength may not count for as much as it used to.

Mon, 11/08/2010 - 19:04 | Link to Comment BigJim
BigJim's picture

Nukes do change the equation somewhat. But even assuming Iran is actually trying to get them... I don't see that it would make much difference to the US$ OPEC equation.

Destruction of the buying power of the US $, now that's a different story.

According to this blog, it's all about how much gold the Saudis can get for their dollars: http://fofoa.blogspot.com/ 

Mon, 11/08/2010 - 19:42 | Link to Comment Rob Jones
Rob Jones's picture

Well, if one of the reasons that the dollar was able to retain its status as a reserve currency during the 70's was that the OPEC countries agreed to accept only dollars in exchange for oil (in exchange for US security guarantees) and if the US is no longer trusted to provide those security guarantees, then another one of the supports for the dollar as a reserve currency is gone.

There is no question (in my mind anyway) that Iran is trying to build nukes. They may not test one for a few years because simple U235 designs don't require testing. The US didn't test the U235 design that it used on Hiroshima. (The Trinity test was of a much more complicated Pu239 bomb).

If I were a leader of Saudi Arabia or one of the other gulf states, I would be earnestly looking for ways to build or buy my own nukes. So suppose China or some other nation were to offer the gulf states nukes in exchange for guaranteed oil shipments? I can think of a lot of unpleasant developments (which hopefully will not come to pass) as US influence in the region wans.

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