Sunday, November 05, 2006


The Euro, US Dollar And Gold

The Turkish Daily News. "The euro will disappear within 20 years because of the inability of member states to stick to the rules underpinning the European Union's single currency, prominent U.S. investor Jim Rogers predicted. 'The euro is not going to survive in my view,' Rogers said in an interview with Reuters in Seoul. 'I own the euro, but I don't expect it to be around in 15 to 20 years,' he added."

"Rogers called the currency used by 12 EU countries a 'political' currency, not an economic one. This, he said, would be its undoing. 'Most of the members are not abiding by the terms of the Maastricht Treaty ... Everybody is either changing the rules, or ignoring the rules, or fudging the rules,' he said, referring to the 1992 treaty that led to the creation of the euro."

"'No currency union has ever survived in history. No free trade pact has survived in history,' he said."

"He stuck to his bearish view on the dollar and even predicted that its days as the world's reserve currency might be numbered. China's yuan could potentially grow into the world's reserve currency, but only if it becomes freely convertible and if China opens its economy more widely. 'It does have the size and the liquidity and the size of the economy, potentially,' Rogers said, adding that it was the only currency with the chance of supplanting the dollar within 10 to 15 years."

"Rogers said the United States was headed for a deep recession because of weakness in the housing market and the large debts it has incurred. 'The U.S. is unbelievably leveraged, over-extended financially and economically, so eventually we are bound to have a serious economic setback,' he said."

"Rogers urged investors to switch into agricultural products such as wheat or cotton to take advantage of what he sees as the next leg in an unfolding commodities boom. Prices were historically low and supply was failing to catch up with demand."

From Bloomberg. "Gold may rally for a fifth straight week, the longest stretch since the metal climbed to a 26-year high in May, on speculation a slowing U.S. economy will erode the value of the dollar. Twenty-seven of 35 traders, investors and analysts surveyed by Bloomberg from Sydney to Chicago on Nov. 2 and Nov. 3 advised buying gold, which rose 4.7 percent last week to $692.20 an ounce in New York."

"The percentage of respondents who expect prices to rise was the highest in more than a year. Four people said to sell the metal, and four were neutral."

"Gold has climbed 9.1 percent in the past four weeks, rebounding from a two-month slide. The U.S. economy grew at an annual rate of 1.6 percent in the third quarter, the slowest in more than three years, primarily because of the biggest drop in home construction in 15 years. The dollar is down 6 percent against a basket of six major currencies this year."

"A weaker dollar is one of the 'positive factors leading to a change in sentiment in the gold market,' said Greg Orrell, who manages the $100 million OCM Gold Fund in Livermore, California. 'Economic data is increasingly showing the U.S. economy is slowing down, leading to anticipation of a more accommodating monetary policy.'"

"Gold futures for December delivery rose $28.20 an ounce last week on the Comex division of the New York Mercantile Exchange. The Federal Reserve hasn't raised interest rates since June 29 amid the housing slump."

"'Gold shifted its attention away from the oil price and back to the dollar,' said Alexander Zumpfe, a trader at Heraeus Metallhandels GmbH in Hanau, Germany, which owns five precious- metal refineries globally. It now costs about 10 barrels of oil to buy an ounce of gold, compared with the long-term average of 17.5 barrels, Zumpfe said."

"'If the ratio would move toward this average, this would mean that gold is expected to show a relatively better performance than the oil price,' Zumpfe said."

"The gold rally is reviving the speculative demand that helped spur gains in the first half of the year, some traders said. 'The funds are creeping back in,' said O'Neill of Logic Advisors. 'I rate gold a `buy.'"

"Hedge-fund managers and other large speculators increased net-long positions in Comex gold futures in the week ended Oct. 31, according to U.S. Commodity Futures Trading Commission data."

Some analysts expect the dollar to rebound, eroding gold's appeal. 'Rallies such as this, which depend so much on the dollar, tend to correct quite quickly and sharply,' said Matthew Turner, an analyst at Virtual Metals Consulting Co. in London."

...for those of you non-believers of what can happen with PMs'. Check out Rhodium from 96-2006.

Under $500 to over $6000. ! .....can you imagine?
...Got silver/ gold??
This is OT, but today's Journal has a great editorial (for anyone with WSJ access): "The Fed's Confession"

I'll paste the main point here:

"... it was nothing short of astonishing last week for Richard Fisher, President of the Federal Reserve Bank of Dallas, to confess in public that the Fed had blundered by keeping monetary policy too easy for too long in 2003 and 2004.

Speaking to bankers in New York, Mr. Fisher issued a mea maxima culpa that deserves wide attention: "In retrospect, the real fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been." As the nearby chart shows, a Fed worried about possible "deflation" moved the overnight interest rate it charges banks in June 2003 to an extraordinarily low 1% and kept it there for another year."

The editorial condemns the Fed for not keeping a close watch on the right stats (which is something), but it doesn't go far enough. Afterall, the Fed didn't just err on the side of inflation -- they actually *concealed* supporting data like the M3 to cover their tracks. The issue isn't 'accidental inaccuracies', its about intentional inaccuracies.
Another excerpt:

As Mr. Fisher conceded last week, the housing slump "is complicating the task of achieving our monetary objective of creating the conditions for sustainable non-inflationary growth." Translation: We may have to tighten money further to restore stable prices, but we're afraid we'll tank the economy if we do. This is the dilemma the Fed's easy-money mistake has made for itself, and for the rest of us.
This is the dilemma the Fed's easy-money mistake has made for itself, and for the rest of us.
# posted by sohonyc : 12:55 PM

I agree, but I don't think it would make any difference who the FED head is. They will all do just about the same thing, no one wants to cause any pain to the citizens of the "feel good" "everyones a winner" country.
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