Gold and the Dubai Debt Bomb
The Dubai Debt Bomb is reaffirming what the gold market has been telling you for the last twelve months: The financial crisis is not over. In fact, it is just in the early stages and it is going to get a lot worse before it gets better. Stay the course with your gold and silver investments because these are the areas where fortunes will be made.
This weeks market review is going to go from back to front, because the big story broke on Thanksgiving and rolled into Friday with a vengeance. There are so many facets to this story that it is hard to know where to begin.
Let’s start with the overall effect that the Dubai Debt Bomb had on the market. The dollar soars and stocks sell off on the news. Why anyone would run to the dollar as a safe haven play is beyond me, but whenever there is any confirmation that the financial crisis is not over, the lemmings head for the cliffs. It is probably just force of habit.
The World Is in Turmoil: Save Me Dollar!
Yeah, I am running to the safety of the dollar! (The computer needs a sarcasm button!) Follow the 50 day moving average and tell me how impressive this chart is. This is what the press is saying about the Dubai Debt Bomb.
The Dubai Debt Bomb!
Gold retreats on greenback rebound
The greenback climbed after Dubai’s efforts to reschedule its debt rattled investors. Silver, platinum and palladium also dropped today. Spot gold reached a record yesterday, while the dollar touched a 15-month low.
“The market is reacting to the news on Dubai,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “A dollar bounce likely means gold will sell off. People are trying to take profit.”
Gold futures for February delivery fell $US13.10, or 1.1 per cent, to $US1,175.50 an ounce on the Comex division of the New York Mercantile Exchange. The metal climbed 7.4 per cent in the previous nine sessions, the longest rally in 27 years. The price has dropped only twice this month. The Comex was closed yesterday for a US holiday.
The US dollar gained as much as 1 per cent as Dubai World, the government investment company with $US59 billion of liabilities, sought to delay debt payments.
Gold has gained 33 per cent this year, heading for a ninth straight annual gain, while the dollar is down 7.7 per cent. Demand for the metal by central banks, pension funds and individual investors has surged on currency and inflation concerns.
“Central banks’ appetite for gold is currently very strong,” said Stefan Graber, a commodity analyst with Credit Suisse Group AG. “We’re likely to see more central banks stepping up their gold purchases.”
This quarter, Sri Lanka, India and Mauritius have bought gold from the International Monetary Fund.
Silver futures for March delivery fell 46.5 cents, or 2.5 per cent, to $US18.335 an ounce in New York. Platinum for January delivery dropped $US32.40, or 2.2 per cent to $US1,447.10 an ounce. Palladium for March delivery declined $US4.30, or 1.2 per cent, to $US368.55 an ounce.
Silver posted a weekly loss, while platinum and palladium gained.
This is the story that turned the dollar around for the day. What does it all mean Alfie? To put it simply, it means that the financial crisis is truly global, and it is by no means nearing its end. This is what happens when you have a government controlled news media. They play to the tune of the party in power if that party reflects their left wing agenda. Reality and truth have no meaning to the to the shills that purvey the party line! Wake up America! It is time that we have adults running the government and not idiots that are trying to make everything “feel” good.
While the Dubai Debt Bomb does not really tie into the U.S. economy because U.S. banks have little exposure to the the Dubai debt, it does point to the underlying derivatives mess that started, and continues to this day, to underpin the economic chaos that is wreaking havoc in the financial sector. Global dependency wreaks global havoc when it runs amok as it has in the financial sector. The U.S. needs to take a step back from globalism and fix its own house before it joins the “global poor house” that our current leaders so relish.
Let’s now turn back the clock to the beginning of the week, before there was a scape goat for further panic in the markets.
Dollar Slump Persisting as Top Analysts See No Bottom
By Bo Nielsen
Nov. 23 (Bloomberg) The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an extended period away.
Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 6.4 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.
It’ll take time to drain the oversupply of dollars from the market, Henderson said. The dollar will remain weak until the Fed’s rates rise above the competitors.
History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates, said Callum Henderson, the Singapore-based global head of foreign-exchange strategy for Standard Chartered.
The best forecaster of the dollar against the euro in the six quarters ended June 30 in Bloomberg’s ranking of 46 firms last month predicts the greenback will weaken 5.3 percent to $1.58 per euro in 2010, from $1.4970 today.
Well that is not, by any means, an over statement! As long as “quantitative easing” is the central banks policy, the dollar will continue its decline. I do agree with the statement that the dollar will take at least a year to turn around if the central bank changes its tune and starts raising rates. We need to face the facts and get a grip on government spending or we are going to become another third world Socialist country.
Meanwhile, Putin Capitalism is alive and well, despite what the state media tries to tell you, Russia, and for that matter, China, get it and are diversifying out of the U.S.dollar.
Russia c.bank buys 0.5 mln oz gold in October
Mon Nov 23, 2009 6:29pm IST
MOSCOW, Nov 23 (Reuters) Russia’s central bank gold stocks rose by 0.5 million ounces (15.6 tonnes) or by 2.6 percent in October to 19.5 billion ounces (606.5 tonnes), data on the bank’s web site www.cbr.ru showed.
Russia’s central bank has said it aims to increase gold’s share in its reserves this year to keep its investments diverse. The metal is also seen as a safe-haven at times of financial market turbulence and economic crisis a status which has helped send the price of gold XAU= to record highs this year.
The web site said the total value of gold in the bank’s stocks rose to $20.4 billion at Nov. 1 from $18.8 billion a month earlier. Gold made up 4.7 percent of Russia’s total gold and foreign exchange reserves the world’s third largest which stood at $434.43 billion at the start of November.
A source in the Russian state precious and metals repository Gokhran said the gold did not come from its stocks.
The central bank was not immediately available for comment.
Russia’s Finance Minister Alexei Kudrin said last week Gokhran, subordinated to the ministry, will sell 30 tonnes of gold to the central bank this year.
Does The Dubai Debt Bomb Signal a Major Change?
The average U.S. citizen has no clue what the Fed is doing to the country and the dollar with the “quantitative easing” policy and the subsequent zero interest rates that it has brought with it. All you have to do is substitute “devaluing the dollar” in order to keep spending and you will be on the right track. If the Fed felt that the US economy could survive a rate increase it would have done it six moths ago. The FED is trying to reflate the U.S. economy with printed money that has nothing to back it. The Fed knows that a major portion of the PRIME interest rates are due to reset in 2010 and any increase in the near future will unleash the hounds of more financial sector collapse.
This is the only reason that inflation is not a concern. The main concern for the FED is reflation and buying time for restructuring to take place. Buying time is the optimum point here. The hounds will be kept at bay for the short turn, but they will be hungrier and angrier when they do eventually get off the leash.
For now the interest rates will remain low for twelve to eighteen months while the FED continues to dig the hole that it is in, even deeper. No good will come of this, but so what, we won’t have to pay the price until later.
$54 Dollar Swing Between The High And The Low
Gold ends up only down $15.13, but what a wild ride to get there! Drops like this are huge buying opportunties if played correctly.
The Chinese, Russians and India understand what is going on and they are taking the steps to protect themselves from the falling dollar. They will all buy lots of gold and silver with the excess dollars that they have. The Dubai Debt Bomb, to answer the original question, signals business as usual for the FED and the U.S. government, nothing more. The gold and silver markets will see through this shortly, and the march upward will resume. This next mid week story is where the gold an silver markets will return to shortly after the markets realize that the Dubai Debt Bomb is not dollar positive.
Weaker dollar also helps push the precious metal to fresh highs.
LONDON (Reuters) — Gold prices hit record highs at $1,180.00 an ounce in Europe on Wednesday, boosted by a report that India may consider buying more bullion from the International Monetary Fund, and the weaker dollar.
Spot gold was bid at $1,178.30 an ounce at 1022 GMT, against $1,168.90 late in New York on Tuesday.
U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange also hit a record $1,180.40 an ounce and were later up $12.80 to $1,178.60.
India’s Financial Chronicle newspaper said on Wednesday that India is open to buying more gold from the IMF, which is thought to have around another 200 tons to sell.
“This, and the weaker U.S. dollar, are enough in these markets to push gold further up,” said Commerzbank trader Michael Kempinski. “It should be time for a consolidation, but it doesn’t come… (we are) just making new highs.”
“We see $1,200 earlier than expected,” he added.
The market is sensitive to speculation of further official sector buying after news in early November that India’s central bank had bought 200 tons of gold from the IMF sparked a rally.
Russia, Sri Lanka and Mauritius have since also announced gold acquisitions, and traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions to diversify their foreign exchange reserves.
“We have had relatively supportive news from the central banks, particularly in Asia, confirming that there is demand for gold as a means of diversifying their large foreign exchange reserves,” RBS Global Banking & Markets analyst Daniel Major said.
“There is plenty more potential for central banks to buy either IMF gold or other gold in the market to try and boost their reserves.”
Further gains expectedExpectations for further reserve diversification, as well as prospects for further dollar weakness and fears over inflation in 2010 have all fueled investment demand for the precious metal, and could lead to further sharp prices gains.
“Central bank and other investor demand could see gold move to $1,500/oz in the next 3-6 months,” said Fairfax in a note.
Weakness in the dollar remains a major support of the gold market, with the U.S. currency dropping 0.49% against a basket of six others on Wednesday.
Where do we go from here?
There has been no change in the direction of the markets this week. If anything, we have seen a reaffirmation that the financial crisis is alive and well and getting more serious by the day.
Because we are still stuck in the early stages of the Debt Bomb, gold coins and bars should be considered an insurance policy. Do not sell any no matter what the price of gold does. The ups and downs in the gold and silver markets are going to become very pronounced from here on out. Your physical holdings are your insurance, your gold and silver stocks are what you should use for speculating. Huge fortunes will be made in the metals markets during the next couple of years. Stay the course, because the trend is up, despite what the state controlled media is telling you!
Till next time, good luck and good trading!
More Gold Market Analysis:
- New Record Gold Price!
- Gold Retreats
- The Gold Jewelery Downturn
- Gold Lower on Speculation
- Is Gold Putting In a Bottom?
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