Wednesday, October 18, 2006


Higher Oil Or Dollar Bears For Gold Rally

The Associated Press has some currency news. "The dollar gained a little ground against the euro Wednesday following a new round of inflation data and an unexpected rise in housing construction. The euro bought US$1.2524, down from US$1.2546 in New York late Tuesday. The British pound fell to US$1.8674 from US$1.8704."

"The dollar edged up to 118.99 Japanese yen from 118.89 yen. Earlier in the day, it had fallen after a newspaper report suggested that the Bank of Japan is concerned about the national currency's recent weakness."

"Some yen buying was seen overnight after a report emerged that Bank of Japan is concerned with the impact of yen carry trades on the yen and short-term Japanese interest rates. Yen carry trades involve the sale of yen to invest in higher-yielding assets and can create more volatility when traders scramble to cover their short yen positions. One factor that may keep the yen on the defensive is a potential second nuclear test by North Korea."

"The Japanese yen made gains early against the US dollar and the euro on Wednesday after newspaper reports implied that the Bank of Japan is getting ready to increase its scrutiny of carry trades. The gains were lost later in the session, however, when the Bank denied that it would watch the trades more carefully or in any new ways."

"Gold fell in New York for the second straight day after a drop in oil prices reduced the metal's appeal as a hedge against inflation. The price of gold has followed oil this year. The metal has fallen 19 percent from a 26-year high, partly as oil shed 26 percent from a record in July."

"'Gold is really following the crude market,' said Michael Guido, director of hedge-fund marketing at Societe Generale in New York. 'A fall below $58 could drag gold down further.' 'One of the biggest threats to commodities is the flow of money into equities,' Guido said. 'That could strip money from the gold market.'"

"Gold for December delivery closed down 90 cents at $592.60 an ounce on the New York Mercantile Exchange, after rising as high as $598. The contract, which lost $5 on Tuesday, hasn't touched $600 since Oct. 2. December silver rose by 4 cents to close at $11.82 an ounce, following a loss of 20 cents in the previous session."

"'Resistance has proved extremely strong ahead of $600 and the market is likely to need either oil to make a substantial move back above $60/barrel, or the return of dollar bears before this can be achieved,' said James Moore, an analyst at For now, 'rallies will continue to be used as selling opportunities with resistance seen from $600 to $608, which is my upside breakout level,' he said."

"January platinum added $10.10 to close at $1,093.10 and December palladium rose $12.90 to end at $332.50 an ounce."

Compared to the real estate blog this is a ghost blog. How can anyone say gold was a bubble? There was no public interest. When threads on this blog start getting 100+ comments I will worry. Until then, slow and steady PM purchases. :)
I agree. I wish there were a way to get some of the more interesting discussions from HB to here. I get tired of wading through so much of the silliness over there to get to the red meat.
The spread on spot and Comex December gold futures is down to $3.00... Silver spread is around $0.10/oz...
October 18, 2006
A Swap Story: Borrowed From The Bank of England
by Rob Kirby
Here is a 'red meat' discussion.

Money is a medium of exchange for economic goods, no?

Oil is needed everywhere in the world, no?

From the end of the gold standard (1971) until 2003, oil was sold in US $, no?

Iraq sold oil in Euros for a few months prior to our taking him over and switching it back, no?

Russia started selling all of its petroleum in rubles in July, no?

With the exception of Iraq and Russia selling in something other than $s, would the definition of money (medium of exchange in economic goods) make the dollar money of the world (assuming the entire world needs oil)?

Supply and demand also apply to determining the value of money, no?

Value of money depends on its objective exchange value as a commodity, of which I can't see much for a piece of paper, plus just its objective exchange value as money.

Since the US $ is paper, its objective exchange value as a commodity is essentially zero. Therefore, you need to figure out what the objective exchange value is.

To simplify, it basically follows the law of supply and demand (not alone, but in the interest of space, leave it Von Mises for more explanation). As long as you keep demand high (needing it to buy oil worldwide), you can continue to increase supply without having a large worry of it showing back up on the market in the form of inflation in certain goods.

This relationship of the dollar and oil is what has allowed incorrect theories like the Laffer theory to defy the laws of econ so long.

I see it coming to a rapid end. You don't want to be holding dollars.
how come i can post here but not on
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