Gold standard debate reignited

Following a volatile midweek session, precious metals regained upward momentum during the overnight hours, mainly on Irish debt-related apprehensions and despite a strengthening U.S. dollar. Gold prices opened with a $6.20 per ounce gain at $1,409.60 and would have been up more like $15 had the dollar not made some gain this morning.

Silver advanced 32 cents to open at $27.46 despite rising signs that a top may imminently be forming and that bulls have run out of breath. Platinum gained another $20 on the open, starting the Thursday session off at $1,756.00 while palladium marched in lockstep, adding its own $20 to values and opening at $718.00 the troy ounce.

Amid such parabolic price gains (palladium, for example has gained 75% ytd), South African producers did the logical (and profitable) thing; they rushed 46% more ounces of all noble metals to the markets in September. Wonder if Russia will be far behind in ‘suddenly’ being able to effect some PGM group metals shipments. Rhodium rose $40 and reached the $2,350.00 mark but it still has some ‘catching up’ to do as it has not enjoyed ‘attention’ from the ETF mania.

In the background, black gold was up 20 cents (at $88.02) and the greenback retook the 78 mark on the trade-weighted index as the euro took a couple of selling hits and approached its lowest level in about one month against it. The common currency was being buffeted by winds of worry about the stall in Spain’s economy and about Ireland’s ability to repay its debt. Thus, “somehow,” just one week after the Fed was largely seen as lighting the “fatal fuse” under the American currency, the dollar managed its best/longest run since August (the time when Mr. Bernanke alluded to what was to come last Thursday) and rose for a fifth session in a row.

This is not to say that the rebound in the dollar has everyone smiling; not when one considers that the currency bounced back from nearly the lows seen one year ago on the same index. In fact, none other than former Fed boss Alan Greenspan accused his successors of pursuing a ‘deliberate’ policy to weaken the world’s reserve currency. Yes, China is recalcitrant on letting its own currency gain in value, but the Greenspan ‘angle’ is that the current imbalance is largely an ‘engineered’ one- and perhaps not all that good in the long-run.

Treasury boss Geithner retorted that Mr. Greenspan did not accurately describe that which is actually taking place and reassured viewers on CNBC that the US administration is not pursuing an active undermining of the greenback “as a tool to gain competitive advantage” or in order to grow the economy. Just as well, since a global poll conducted by Bloomberg (1,030 investors took part) reveals that fully three-quarters of respondents believe that the latest iteration of QE will have little or no effect on joblessness and/or US GDP.

G-20 in Seoul delegates strained to come up with an enhanced version of the promises for currency stability they made in October. The better part of a lengthy “Seoul-searching” session was spent by only two men discussing [wish one were a Korean fly on the wall] “something” that is at the core of the unbalanced global situation. The two men were Mr. Obama and Mr. Hu Jintao. You get the gist of this.

And yet, the vicious circle continues to roll on; the world needs the US to grow, and grow faster. The US (well, at least the Fed) believes that growth comes from accommodative policy (for now) and that tightening can wait. The world then sees a lower dollar, an influx on unwanted capital, and a need to ‘compete’ with correspondingly weak(er) currencies in order to keep other economies afloat. Nobody seems to be winning.

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