Friday, June 02, 2006

 

US Dollar Resumes Slide On Weak Data

The Associated Press has the currency numbers. "The dollar fell against most major currencies Friday after a jobs report came in below expectations, raising speculation that the Federal Reserve may pause its credit tightening policy. In afternoon New York trading, the euro bought $1.2917, up from $1.2797 in New York late Thursday. The British pound climbed to $1.8828 from $1.8643."

"The dollar dropped against the Japanese currency, falling to 111.62 yen from 112.68 yen late Thursday. The dollar bought 1.2073 Swiss francs, down from 1.2217 late Thursday, and 1.1007 Canadian dollars, down from 1.1021."

"The Labor Department reported that job growth in May faltered as employers added just 75,000 new jobs. Job gains for March and April turned out to be weaker than previously reported. At the same time, wage growth was found to have slowed, a development that could ease concerns about inflation gaining strength, and reduce the chances of the Federal Reserve continuing a campaign of interest rate increases."

"Gold was higher in U.S. afternoon trading on Friday, in a rollercoaster session that saw prices drop to a five-week low overnight, then rebound after weak U.S. jobs data triggered a big drop in the dollar. 'After falling by about $60 in the last few days, it looks like a natural bounce,' said John Meyer, analyst at Numis Securities."

"'Gold is following the dollar to some extent. I see a period of consolidation before the rise,' he added."

"Spot gold fell as low as $618.50 an ounce in Asia before rebounding to $638.60. It was quoted at $637.30/638.10 in New York, against $626.30/627.10 late on Thursday. The metal has fallen more than $110, or 15 percent, since hitting a 26-year high of $730 about three weeks ago. But gold is still up 22 percent this year."

"'Investors banking on gold as insurance against financial or geopolitical risk may have been disappointed by the metal's falls over the past few weeks,' John Reade, analyst at UBS Investment Bank, said in a note."

"'We do not believe that gold has permanently lost its safe-haven status, but we do recognise that with few shorts in the market and considerable positioning from commodity and trend-following investors, there are clear risks of further declines in gold should global growth expectations fall.'"

"Some dealers were optimistic. 'Gold is bouncing across the sector. We have been down, we have tested lows and now I am looking for a recovery from here,' said a precious metals dealer in London. Gold was also lifted by a rise in oil. U.S. crude rose more than $2 to $72.70 a barrel after news oil workers were kidnapped in Nigeria and Iran said its nuclear enrichment work was nonnegotiable."

"Elsewhere in the metals sector, silver finished up 18 cents at $12.09 an ounce and was up 5% on the week. Platinum closed up $15.10 to $1,244.90 an ounce. The metal lost 4.1% on the week. Palladium closed up $15.75 at $353.15 an ounce for a 0.5% decline on the week."

"Earlier, gold found support from reported comments by a Chinese central bank board member, who said the country should use its foreign-currency reserves, the world's biggest, to buy gold and oil as a hedge against further weakness in the dollar.
Yu Yongding later told Platts that the country is diversifying its reserves, but denied the reports in local and international news outlets that he recommends moving aggressively on gold."

Comments:
I'm not sold on the bourse-euro theory just yet. however, I think it shows that people are troubled by the dollar. it show maybe they don't trust it. it has to have some effect on the level of the dollar.
 
Given the instigators, I'd say it has little to do with the economics and everything to do with politics. If it flies however, THAT will be for economic reasons.
 
from the NY Times

June 2, 2006
Street Scene

A Commodities Bull Can Find No Reason to Pull In His Horns
By MICHAEL J. DE LA MERCED

James B. Rogers Jr. calls himself the world's worst market timer. It is an air of modesty he cultivates with sometimes folksy anecdotes and an ever-present drawl.

But market timing aside, as an avowed commodities bull, Mr. Rogers is undeterred even as less committed bulls suspect that the peak is past.

A fund manager, author, traveler and occasional television commentator, Mr. Rogers says he believes that the commodities market is less than a decade through a bull market that could last more than 20 years.

"Someday there will be 10,000 mutual funds that trade commodities," he said. "On Park Avenue, wives won't talk about flipping real estate. They'll be talking about soybeans and pork belly futures."

Of those critics who say commodities are only this year's dot-coms, he says, "Two or three years ago, they couldn't even spell commodities."

By contrast, Mr. Rogers says he has been trading commodities since the early 1970's, even before the commodities boom of that decade.

He also has a string of unique experiences in the markets. Mr. Rogers co-founded the Quantum Fund with George Soros in 1969, and retired in 1980 at the age of 37. After a stint at the Columbia Graduate School of Business, Mr. Rogers embarked on two global adventures, one by motorcycle, detailed in "Investment Biker," a book he published in 1995, and one in a custom "Millennium Mercedes" the size and color of Big Bird, the Sesame Street character. His adventures earned him the sobriquet "the Indiana Jones of finance" from Time magazine.

More important, he said, those adventures have given him some insight into the state of various markets around the world, from sweet-toothed Armani-clad youth in China to corruption-laden bureaucracies in Nigeria.

His faith in a commodities bull run seems ill-timed given the sharp declines metals have taken after recent spikes. The price of a gold futures contract for delivery in June, for instance, closed yesterday at $629.60 an ounce on the Commodity Exchange in New York, down from $728.60 last month.

"We'll always have big consolidations," Mr. Rogers conceded.

But as crude oil stays stubbornly above $70 a barrel, it is hard to dismiss him outright.

Though he concedes that energy and metals have hit a rough patch, with zinc and copper due for a correction, Mr. Rogers insists that commodities as a whole will continue to go up.

Look instead at agricultural products, especially sugar and coffee, he said, which currently trade far below their historical highs.

Coffee, which traded for more than $3.37 cents at one point in 1977, was trading at about $1 a pound this week. Sugar, which traded as high as 66 cents a pound in 1974, was trading for about 15 cents a pound this week.

Of course, Mr. Rogers has a stake in promoting that idea. He is the author of "Hot Commodities," a book about commodities investing he wrote in 2004.

And he is the creator of the Diapason Rogers Commodities Index Fund, an investment fund that buys commodities and is based on the Rogers International Commodities Index of 35 futures contracts, which Mr. Rogers also developed. From Jan. 1 through May 31, his commodities index fund rose 9.4 percent. The Standard & Poor's 500-stock index is up 1.7 percent over the same period.

He points to academic studies that show bull markets lasting anywhere from 15 to 23 years; given those figures, the commodities bull run that started in 1999 should last until 2022.

And more important, he says, commodities producers have failed to develop new sources of production.

Demand for lead has exploded, but the last new smelter built in the United States was opened in 1969. Oil companies have not opened significant new oil fields in more than 25 years. The story is the same with copper.

"I was with a couple of copper mining C.E.O.'s recently, and they said they were having a hard time finding labor, saying, 'We can't find engineers, we can't even find miners,' " Mr. Rogers said. "And I asked them if they even know the level of their reserves. And no one knew."

Couple that with voracious appetites for commodities in China and India, and the prices should continue to climb, he said.

"The last time we had a bull market, three billion people in Asia were closed off," Mr. Rogers said. "Now we have China, we have India looking for commodities. They've all seen Western TV."

Mr. Rogers has great faith in China as the bull to which the commodities market is yoked. He says he believes that China will fully float its currency, the yuan, in time for the 2008 Summer Olympics in Beijing, and that China's growing capitalist class will displace the Communist Party.

Mr. Rogers is bearish on the United States. To him, America's time has passed, with its $8.36 trillion in debt, a weak dollar and its dependence on imported oil. He recommends selling United States dollars.

He recommends investing in countries with well-managed commodities production, like Canada, Brazil and Argentina, as well as China.

Mr. Rogers believes in China so much that he hired a nanny who speaks only Mandarin to his 3-year-old daughter. Signs taped around the Rogers household name objects in English and in Mandarin: a panda statue bears one with the characters for "xiong mao." Hanging above the stainless steel stove is the word "zhao."

His wife, Paige Parker, who was his traveling partner in the Mercedes during the "Adventure Capitalist" journey, is learning Mandarin this summer. Mr. Rogers said he might try to pick it up, but he has few illusions about his chances for success. "I'm tone deaf," he said.
 
"A currency is backed by the economy it represents. Those noisy dictators who sell oil in euros will quickly find the euro, or peso, or whatever they want, to be more volatile and risky than the dollar."

why? the dollar is fading fast. the dollar index is terrible, that's why people are moving to the euro. the largest deficits in the history of the world are our twin deficits. there isn't much hope for the dollar.

many foreigners are awash in dollars, CBs all around the world talk on a monthly basis about how they have to diversify. CB after CB says that.
 
I totally disagree with the notion that FDIC insurance isn't safe. In fact, I believe it to be the ONLY 100% safe 'investment' out there.

Gotta disagree with you on this one, thejdog. Banks have high exposure to RE and very low reserves. The housing / credit bust will take out far more banks than FDIC has insurance to cover.

Another point I've made before is that even if you get it back, it won't be in a timely and useful manner. A banking crisis would see cash withdrawals severely curtailed for an extended period by federal mandate. Sure, they'd send you statements with numbers on it, but you'll have no real control. By the time it is released, a significant portion of it's original value will likely have been inflated away.
 
Oil sold in something other than dollars? Just another nail in the coffin for the USD (and there's a lot of them).
 
TJ-

"As Paulson prepares to move to Washington to serve as U.S. Treasury Secretary, Goldman shows no sign of easing up. Nor do its followers. This trading boom, fueled by cheap money, is fundamentally different from the ones of the past. When traders last ruled Wall Street, during the mid-'90s, few banks put much of their own balance sheets at risk; most acted mainly as brokers, arranging trades between clients. Now, virtually all banks are making huge bets with their own assets on many more fronts, and using vast sums of borrowed money to jack up the risk even more. They're shouldering risks for their clients to an unprecedented degree. They're dabbling in remote markets from Brasilia to Jakarta, and in arcane products like credit-default swaps and catastrophe bonds. Led by Goldman, many investment banks now do more trading than all but the biggest hedge funds, those lightly regulated investment pools that almost brought down the financial system in 1998 when one of them, Long-Term Capital Management, blew up.

What's more, banks are jumping into the realm of private equity, spending billions to buy struggling businesses as far afield as China that they hope to turn around and sell at a profit. With $25 billion of capital under management, Goldman's private equity arm itself is one of the largest buyout firms in the world, according to Thomson Venture Economics. The moves are not unrelated to trading. In both cases, banks are flocking to exotic and inaccessible markets where there aren't many others to fight for profit. Counterintuitively, they're seeking out the investments that would be the hardest to get rid of in the event of a disaster. They're betting, in other words, that handsome returns when times are good will make up for losses when things turn ugly."

Inside Wall Street's Culture Of Risk
 
So in your scenario the US gov't sits by as millions of Americans try to withdraw money from their bank, only to find that the bank has no money.

Not mine. I'm saying that once they realize that can happen, they won't let you. Read about Argentina's recent history for a refresher.
 
Heh heh heh, nice catch, John!

Always, ALWAYS gotta wonder about "new economic models".

thejdog, you did make your point before. There have always been rabid PM shills just as there have always been rabid RE shills. You & John in VA have simply misjudged the size of their relative audiences. The public still doesn't have a clue about PMs, whereas everyone knows about RE. When James Turk (or Jim Rogers) is as famous as Donald Trump or Robert Kiyosaki, then you'll have an argument.

/\/\/\/\/\/\/\/

That said, I do think the world is changing, and regardless of what happens China isn't simply going away (nor is India).

As for "petrodollars", I believe they have been just as much a factor in the strength of the dollar as have foreign purchases.
 
"There's a huge flaw in this argument, which I've heard stated over and over with respect to commodities. It doesn't make sense to compare today's price to yesteryear's bubble peak. The bubble peak was, by definition, an irrational price."

if you look at it from the scope of secular bull and bear markets. look at stocks, each secular bull market in stocks in the 1900s topped out higher than the last one, even in inflation adjusted terms. commodities are in a secular bull market, they will eclipse their inflation adjusted highs. they aren't even close yet. like rogers says, this will go on for a decade, maybe more

for commodities to be in a bubble, they'd have to be on the cover of magazines and people would be leaving their jobs to daytrade futures. they'd say in 5 years they'll retire on their silver mining stocks.

rogers is bullish on china. it's on the rise. yes it will have problems, but it's on the rise. that will push up commodity prices.
 
"Lucent today trades well below it's peak -- does that mean we're in a bull market for Lucent stock? Lucent could easily enter into another speculative bubble without getting anywhere near it's previous peak."

like I said before about amazon, the difference now is stocks are in a SECULAR bear market. they won't make new highs for decades. commodites on the other hand, are in a secular bull market.

you're missing the big difference, which is why the amazon and lucent examples don't work, which is that stocks on in a secular bear market.

you don't understand the whole commodities and switching switching places every 17 years or so?

this is from an article that I don't have the link for right now.

Over the past 200 years, commodities had five secular bull-markets between the following periods –

1st boom – 1823-1838 (15 years)
2nd boom – 1848-1865 (17 years)
3rd boom – 1878-1918 (40 years)
4th boom – 1929-1950 (21 years)
5th boom – 1963-1980 (17 years)

here are some great financialsense.com interviews with jim rogers.

Hot Commodities: How Anyone Can Invest Profitable in the World's Best Market

here are a few with marc faber

The Dollar's Fall & the Continuing Boom in Commodities, Especially Gold
The Long-Term Bull Market in Commodities FSN Roundtablewith Jim Rogers

Tomorrow's Gold: Asia's Age of Discovery


the crucial difference is commodities made their all-time highs 26 years ago, stocks made their all-time highs 6 years ago. less than a year ago everyone was bashing gold. they were clueless about silver. they knew nothing about any other commodity except oil.
 
"ounds reasonable and pretty in-line with a lot of the commodity bull arguments I've heard recently. Except that's not the actual quote. I made a few substitutions. Here's the original quote:"

totally different, real estate was 10 years into what is usually a 10 year real estate cycle. commodities are only 7(a little less or more depending on who you talk to and what commodity) into what is usually a 17+/- year cycle.

there aren't many people who even know you can invent in commodities.
 
In fact, I believe that the stock market's long-term bullish trends resumed shortly after the dot-com bubble burst.

Come on John, you have got to be kidding!! This has been just your typical dead-cat bounce.

Whether or not you believe in KWs, EWs, etc., history shows that economic cycles mirror collective human emotions. One of those is the unwillingness to let go of good times; people refuse to believe it's over, and governments try everything to avoid the inevitable. This has been a cyclical bull within a secular bear, and I'm pretty sure the cyclical top is already in.

Housing's finally turning down, the jobs report is weak, consumer confidence is slipping, etc. A good portion of job slippage was in retail, too -- not a good sign in a consumer-driven economy. Finally, on a day when a "bad" jobs report should've triggered a rally -- due to the expectation of a "pause" by the Fed -- the market didn't go anywhere.
 
"This has been a cyclical bull within a secular bear, and I'm pretty sure the cyclical top is already in."

I totally agree. each bear market has it's rallies that bring in the last sucker to do the most damage.
 
"Are you saying that if we were in a secular bull market for stocks right now then I could make a rational judgment about the attractiveness of LU by comparing the current price to the price at it's most irrational peak?"

yes, but for stocks. in a bull market, stocks take out there old highs. it's happed in 1929, 1966-68 and 2000. each peak was higher than the last. each took out the old irrational high. that's what a bull market does, it takes out old highs, even if the last one was irrational.

LU is one of the stocks that could never come back, because it was such a leader. I don't know the specifics of the company though.

"john, all this demonstrates is that the duration of bull markets is highly unpredictable. These durations are all over the map -- the longest was almost 200% longer than the shortest."

no they aren't, 80% are around 17 years.

"If they do suffer a painful crash, it is quite possible that prices could resume a more reasonable rate of growth. But there's no way that the parabolic increases in price we've seen over the past year are explained by anything other than good old-fashioned speculative fever, IMO."

it's not possilbe to resume for a stocks because once they enter a bear market they go to levels of undervaluation. stocks are nowhere near undervalued, their still historically overvalued.

how many commodities do you think are parabolic? copper and zinc are the only one's I can think of, but there are many more commodities. the grains are still very depressed. silver is still well below it's old nominal highs. gold would have to rise 32% just to get to it's old nominal highs.

you could have said gold was going too far in the early 70s, but if you dumped gold early you missed the correction that sent gold to $100 from $200(which I'm sure people said was going parabolic from $35) and subsquently to $850.
 
Secular bear, cyclical bull.

There are always bulls within bears, and bears within bulls. This is, as JL2 stated, the short-term sucker's rally within the inevitable long-term downtrend.

Yes, India & China are a mess. Does that mean they'll suddenly revert back to a self-contained, mostly agrarian society? No chance.
 
john in va,

Go to Kitco and check out the charts on Rhodium. Man, I wish I had money on that one!
 
gold, silver and sugar aren't parabolic. gold and silver are probably just the big short position people getting SQUEEZED. palladium went parabolic because the main supplier, which was/is russia, went offline temporarily. companies had to scrample to get any palladium they could. it was an artificial shortage, with a huge supplier just waiting in the wings with stockpiles.

("The stock market is in the hands of manipulators. We had never seen such a fall,")

I don't know where India is in their stock market cycle. I can't tell if that's like a 1987 temporary setback like the US experience, or the sign of a secular top.
 
But if you create massive amounts of money, everything is going to go higher: eggs, milk, bricks, gold, Ab Blasters, and so on.

Yes and no. Everything doesn't go up, only those things people really, really want or can't live without.

Inadvertently, you're making our argument for us. Eggs are fragile, milk goes bad, and bricks simply can't be carried around easily. Not everyone needs everything at any given moment either. So, what is strong, durable, has value in small quantities, and is acceptable as a common medium of exchange that never loses value? I'll give you two guesses!
 
(Why would we believe that one aberrant price level in a 600-year period would be the new benchmark?)

because in bull markets, old prices are taken out. previous price changes were the result of huge silver finds that took centuries to absorb, and the fact that human labor was increasingly taken out of the equation.

each major decline on that chart happens around the time of a great discovery, like the discovery of the Potosi mine. the Spainish brought back immense quantities of silver and discovered a new continent.
 
(just like real estate speculators dialed into the "buy now or be priced out forever" hysteria of first-time homebuyers.)

not even close. nobody is in silver. it JUST got it's first ETF. everyone is still trading homes. 6 months ago people didn't know about silver and the pundits were trashing gold. 1 year ago they thought oil was heading down to $40, after their $30 price target looked unreasonable. my god, silver barely went up 3X, what kind of mania is that?

everywhere you go on tv, some bigwig is saying inflation is dead. everyone knows the dollar will probably fall a little, but they say that's a good thing.

no mania yet.
 
(How do you explain the same failure of gold to rally beyond the peak set a number of centuries ago?)

because a few centuries ago gold and silver were much more rare because it was a lot more tougher to mine. the Potosi mine and the Comstock loads were huge finds.

anyways, 600 years ago doesn't have much to do with the last inflation adjusted peak of the1980s.
 
Cute parsing, John in VA.

My "never loses value" statement was intended in the absolute sense -- meaning that it will always be valuable.

Likewise, "common medium" was meant more in terms of recognition than convenience.

Regarding either expression, think of the circumstances anywhere in the world 100 or even 1000 years ago.

Of course, you knew what I meant. You're just playing with us! ;-)
 
if the metals were in a bubble, that would mean EVERYONE would realize inflation is skyrocketing and seemed like it would never end. everyone would believe the dollar is toast. does that sound like the type of environment we're in now? now with interest rates taking forever to go up and they certainly don't signal a PM bubble.

silver and gold are rising quickly for two reason.

1. the large short positions by the institituions probably finally got caught on the wrong side of the trade.

2. institutions and hedge funds have finally discovered commodities as an asset class. the problem is there simply isn't a whole lot of physical gold and silver around, that's why silver and gold are rising. that's why the price needs to rise a lot higher, so we can open all those mines and get the silver candlesticks out of people's homes.

I think the global capitalization of gold stocks is still less than $150 billion dollars.
 
John in VA,

Of course things fluctuate. The "value" of something is exactly what people place on it at a specific point in time -- nothing more, nothing less.

However, I am again discussing PMs more in a long-term macro sense, ignoring shorter term gyrations.

Governments rise and fall; fiat currencies come and go; gold & silver remain. The U.S. itself rose on gold & silver currency. Now we're on the downside, and IMHO the purchasing power of PMs will increase dramatically as a result.
 
I'm in the minority here with big bets on the Euro (however, my biggest bets are on CAD and CanRoys). I estimate my Euro bets are twice as big as my PM bets.

Here are my views on the Euro:
Most of us agree that the USD will faulter at some point. Serious PM bugs want all unbacked paper currencies to fail, and logic might conclude that is what should happen.

I believe the marketplace is setting the stage for the Euro to be the next world's [paper] reserve. Pre-war Iraq attempted to switch to Petroeuros. Syria switched their savings to Euros. The Middle East in general has large European accounts. Iran is trying to switch to Oil Bourse (which will result in higher demand for the Euro). Venezula is proposing Petroeuros too. I believe this is a beginning of a shift not to be taken lightly.

People might argue that the fundamentals of the Euro are worse than the USD, but right now the psychology of world markets point to a fear of USD. We have all witnessed psychology overriding most market factors.

When USD crashes, perhaps it will take the other major currencies with it. But what damage does that really do? Only then emerging market currencies will be worth more. No one would consider that a crash. I believe if we have a currency crash, there will be one faulter or different tiers. USD would be it or faulter more than others and so I shall win my bet.

If I'm wrong and USD prevails over CAD, EUR, and JPY, then I should have just sticked to T-Bills.

Russia is on the right track for trading in gold. I can understand other countries hesitating to do this because of the high volatility of PMs (not to mention oil itself).

(I like this comment and I'll be reposting on my blog.)
 
if you like the euro, check out FXE.
 
( But it's not hard to see that the there's more downside risk than upside potential at these prices, if you use historical prices as a benchmark.)

it's easy to see much higher gold prices when you take into account the fact that gold is in long-term bull market.
 
John in VA,

You may be correct in that gold is near it's historic average. However, that only means that gold has achieved a "normal" value; that which is neither being artificially suppressed (e.g., 90's) nor extremely energized (e.g., late 80's). IOW, all things being equal, you could expect exactly zero returns.

That's just it, though... things are not equal! You've inadvertently made another of my points. Things are bad and getting worse, which means the fundamentals underlying PMs are improving dramatically. [In fact, things are apparently far worse than the late 80's.]

Government and/or fiat crises are extreme events; even the suggestion of same can result in rather extreme PM moves (beyond the effect of hyperinflation itself) due to the resulting fear.

IMHO, the die is cast; now it's only a question of timing. [Funny... same question we keep asking over on Ben's other blog. But of course, these issues are fundamentally intertwined, aren't they?]

p.s.: The weekend's almost over and I still have work to do, so Part III & IV have been delayed yet again. We'll get there!
 
(I think it was mentioned above that such an option is not even on the table today, due to the fact that they cut it down to the bone to inflate the RE bubble and people would be jumping off their McMansions when all their ARMs reset to 15%.)

exactly, I have a feeling they won't be hawkish on inflation, in part because they can't be. their debt leveraged financial monster will fall apart. they'll keep rates lower than they should be(heck, they already have) and for too long. this is bullish for gold.
 
OOPS! Obviously meant late 70's, not late 80's.

p.s.: Anyone note that we've got this thread over 70 posts??
 
if gold is near it's peaks, why is that not the case for the dow/gold ratio? in fact, the dow/gold ratio still shows gold massively undervalued compared to the dow. it's at the levels seen at the tops in 1929 and 1980. the dow/gold ratio bottoms out under 5, we're not even close.

the gold bull market has barely begun.
 
John in VA,

Okay, so I did read your post incorrectly. I'll pay better attention next time, I promise!

What I am claiming is that speculation has become the dominant force in PM price movements, and as such, I would expect a lot of volatility going forward.

Maybe we need to discuss the use of the term "speculation". I'd venture to say that all currency trades are speculative by their very nature, and PMs are simply the world's oldest currency.

Given the fact that gold is already well above it's inflation-adjusted 200-year average of roughly $499, I believe that the downside risk far outweighs the upside potential.

Sorry, don't buy it.
* 200 year time-frame? Gold was fixed at $20 until the Great Depression, then fixed at $35 until 1971. Uncle Sam forbid private possession in the interim.
* The CPI has been bogus since the early 90's.
* The dollar dropped from 1.20EU in 2001 to .75EU in 2005. Even accepting the 1999 $435 figure (which I don't), that would put gold around $730 in 2005 (which, coincidentally, was the recent 2006 peak).
 
John Law II,

Forget DJIA, how about that gold/oil ratio!!!

thejdog,

Only a dozen? Take your shoes off and try again! ;-)
 
I love those ratios, the more obscure the better. I remember they did ratios with gold/oil and oil/gold. same thing for silver. anyways, they showed that silver and gold was undervalued relative to where the price of oil was. damn if that ratio wasn't right!
 
...but the psychology of these things piques my interest

No doubt psychology is the key to PMs. That's why I paid (pun intended) zero attention to PMs up until a few years back. I mean, really now, the value assigned defies logic... unless you consider human nature. Assigning value to PMs is as basic an instinct as sex. PMs are sexy, hence their use in jewelry.

Once you accept the fact that humans instinctively assign a relatively stable value to PMs, then you can start considering other factors:

* Supply.
* Normal non-industrial demand.
* Industrial demand.
* Perceived(!) inflation/deflation.
* "Full Faith & Credit".

The last two factors are the real wild cards that can cause PMs to "go ballistic". Once people's confidence in a government's ability or willingness to meet its obligations is shaken, that currency is toast. Now, if it's the world's largest economy and the de facto reserve currency, all fiat is toast... and PMs rule once again.

Euro? Yuan? Yen? Any one non-USD currency is simply incapable of replacing the USD without suffering an export-killing exchange rate. Remember too, when the U.S. sneezes, the world catches a cold.

Finally, the amount of "money" in the world since 1971 has grown (to borrow a term) parabolically compared to the total stock of PMs. All that money chasing such a little supply means the sky's the limit.
 
Probably because the U.S. "new economy" looked like an unstoppable juggernaut forever set to lead the world?

Killer economy (at least superficially), disciplined government (again, at least superficially), $10 oil, pre-9/11, pre-Iraq, no perceived inflation, and the last years of coordinated gold sales by CBs. It's no wonder gold languished.

I'll say it again and again and again... it's all psychology.
 
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