Tuesday, May 02, 2006

 

US Dollar 'Unreliable As A Reserve Currency'

Some reports on the fast changing currency and commodity situation. "Gold futures climbed above $670 an ounce in electronic trading Tuesday evening, after ending the regular session up more than 1%. A weak U.S. dollar, strong energy prices and concerns about Iran's nuclear program fed into investment demand for the precious metal."

"During the regular session, 'traders were watching a sinking dollar and the apparent diversion of petro-dollar profits into bullion (a repeat of the pattern that was last visible in the gold run of 1980),' said Jon Nadler, an investment products analyst at bullion dealer Kitco.com. So, 'while a correction is surely out there, the numerous bullish fundamentals have created the 'perfect storm' for gold and silver,' said Peter Grandich. 'We are not likely to see this again in our lifetime.'"

"Gold for June delivery climbed as high as $671.80 an ounce in electronic trading Tuesday evening and was last up $3.90 at $671.30. The contract rose $7.20 to close at $667.40 an ounce during regular trading on the New York Mercantile Exchange, after topping at $669.30."

"The benchmark gold contract climbed $5.70 on Monday, leading a broad-based advance in the metals sector as the dollar hit a one-year low against the euro and a seven-month low against the yen. The dollar remained under pressure Tuesday."

"July platinum climbed $7.60 to close at $1,185.40 an ounce to a fresh record of $1,186, while June palladium added 10 cents to end at $386.35 an ounce."

"Shares of Apex Silver Mines were the biggest index-component losers Tuesday. The stock dropped 15.7% to close at $17.70 after trading as low as $13.50. It touched a 52-week high of $27 less than a month ago. The company said it believes the unusual trading activity in its shares Tuesday is related to recent events in Bolivia, concerning the country's planned nationalization of its hydrocarbon industry."

"Canada's dollar rose above 90 U.S. cents for the first time in 28 years on prospects the Bank of Canada will keep increasing borrowing costs as the economy benefits from a boom in oil and commodity prices. The Canadian dollar has climbed 5.2 percent against its U.S. counterpart this year, following four straight annual gains. The currency rose 4.8 percent last month."

"The Ottawa-based central bank has raised the rate by 1.5 percentage points since September, the most since 1998, narrowing the gap with the 4.75 percent U.S. benchmark rate. The bank next meets on May 24 to set rates. 'The outlook for interest rates is still positive,' said Ian Stannard, a currency strategist at BNP Paribas SA in London. 'Canada's economy is still moving ahead, keeping expectations of higher rates alive.' Stannard forecast the Canadian dollar may reach C$1.08 over the next few weeks.'

From the Moscow Times. "Confidence in the U.S. dollar has slumped to a new low, as a series of political and economic statements last month questioned Russia's reliance on the world's most convertible currency. Within a month, the U.S. currency was called 'unreliable as a reserve currency' by Finance Minister Alexei Kudrin, made a taboo word by the Public Chamber and centrist politicians, and ditched by the general public amid reports of its imminent depreciation."

"The U.S. dollar has fallen to its lowest rate against the ruble in a year, 27.2424, with signs that further drops are likely, prompting analysts to propose that the time to save or speculate in rubles has come. 'In the short to mid-term, the choice has to be for the ruble,' said Yaroslav Lissovik, chief economist with investment bank Deutsche UFG."

"Russia's foreign currency and gold reserves grew by 46.3 percent in 2005, the fastest of any country. As of April 14, the reserves stood at $212 billion, the world's fifth-largest and close behind those of South Korea. 'Kudrin is the man that decides which currency those reserves are held in,' said Yevgeny Nadorshin, chief economist at Trust investment bank."

Comments:
This does have the feel of a historic turn. The only thing that has allowed the US to export it's inflation all these years has been its reserve currency status.
 
...and it's sovereignty over oil.
 
tj,
Some would suggest that it is the oil primacy that made the US$ the major reserve currency. And that the oil power came from those aircraft carriers in the Persian gulf. I'm not sure, but it may be over when Iran can thumb her nose at you and Russians prefer the ruble to the buck.
 
Anecdotal evidence from L.A....

A group of us have been buying gold from a large dealer (CNI) in LA. Over the past year, we have never encountered any more than one or two other people in line to purchase.

Yesterday there were about 10 people in line, all feverishly buying Canadian Maples and Gold Eagles. Maybe the word is out about gold?? Has Joe sixpack started buying??
 
HEY! That's my dealer!!! ;)

Things had definitely picked up there last trip I made, and the salesman confirmed that business was brisk. Still just us bugs, though, otherwise it would look like Black Friday outside a WalMart.
 
I think some Joe Sixpacks might be starting to buy gold. But we are probably only 5% into John Public that we'll see at the peak.

I was just convincing a coworker to look into it today and he seemed somewhat determined to check it out. :)

I'm counting on the CAD, EUR, and JPY to go higher. Lately, it's been really nice. I might have to take a dip into Rubles too. Everbank just started to offer Ruble CDs paying 3%.
 
I am a jeweler and coin dealer in Michigan. I am seeing more traffic every day, lots of new people buying gold and silver in addition to my regulars. Bullion dealers have a saying "at $300 nobody wants gold, at $500 everybody wants it". We may have to revise the $500 number to something a little higher....
 
Welcome, Jim. Please keep us informed on traffic trends!

This could be a little "Kiyosaki" effect.

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
- Charles Mackay
 
HEY JIM,

Without disclosing any trade secrets, can you tell us what's most popular? Also, your professional opinion on the best physical bullion investment values would be appreciated.
 
IMO, the best way to own gold bullion is the American Eagle 1 ounce. They are the best when it comes to resale. I occasionaly get Indian customers who want the Canadian maple leaf because it is 24K. When they bring gold back to India they must pay a duty on anything that is less than 24K. Stay away from Krugerrands if possible. Some people don't want them at any price due to the legacy of Apartheid and dealers will always pay less for them due to the difficulty in selling them.

If you wish to purchase silver I recommend .999 1 ounce bars. They are the most liquid form of pure silver. 100 ounce bars are nice if you already have some 1 oz, but a little more difficult to sell. U.S. 90% silver coins are very convenient and liquid as well. 1 ounce American Eagles cost more to purchase but you get the premium back when you sell them. Some of the dates have appreciated dramatically past their bullion value because they carry numismatic value as well.
 
Jim!
Where in Michigan you at. I want to visit you.
 
Mike C and others...

I am in Dearborn, Michigan. My store is called C. Louise Jewelers and I can be reached at 313-562-4060

btw thanks for all your comments about Chicago, I remember reading many of your posts on Ben's housing blog over the past year. I post over there as motorcityjim(and on patrick.net) but for some reason this blog truncates my name to Jim.
 
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