Gold intensifies bearish tilt, testing $1,700

In the Lead: “Raining Pain in Spain”

Once again, the euro pierced the $1.35 mark and headed into an uncertain future for the week. The US dollar, on the other hand, picked up about 0.6% and headed toward the 78.50 level on the trade-weighted index while trading at a six-week high against its rivals. If anyone is still out there, puzzled by the dire forecasts of the hard money newsletter vendors, wondering why the beleaguered greenback is ‘suddenly’ enjoying the restoration of its global reserve currency status, well, they need look no further than…the current year’s pattern. It is not what was expected.

It has been one year during which the world’s foreign banks doubled their deposits with the Fed (to $350 billion, from the end of 2010). Unfazed by the deficit debacle in DC, unfazed by some of the economic conditions in the US, unfazed by Moody’s rating shift, unfazed by virtually nil interest rates, the worried money of the world has rediscovered the fact that when pushing and shoving are involved, the rest of the safe-haven platter has very little to offer in terms of credible alternatives to the buck. Add to all that the fact that the US economy is showing signs of being on a firmer footing of late and you have most of the ingredients for the growing fan club of the American currency. The Chicago Fed’s national activity index ticked higher in October and it is approaching “growth above-trend” level readings.

This is not a big surprise; not at a time when AAA-rated France is staring at ballooning bond yields and Italy, Greece and Spain are being taken to the market woodshed. So, instead of the buck ‘stopping here’ (as in: its grave) as you were constantly told all year, the rest of the world has decided to ‘stop at the buck’ and take refuge in it. Digest this, dollar morticians: despite all that has transpired in three and a half decades, the US currency is now trading at only 4% less that it traded at in 1975 – two years after Mr. Nixon made the currency’s divorce from gold official.

Also adding to the manifest anxiety in the commodities’ space this morning are the reverberations of the words of Chinese Vice-Premier Wang Qishan who said yesterday that the world is apparently set to experience a dragged-out economic contraction and that the global outlook is “extremely severe” at the present time. It is widely accepted that China’s leaders are wringing their hands as they observe a synchronously developing global slowdown in the wake of massive de-levering. That’s not a process that takes only a few months, normally. Just as synchronized as the planetary economic contraction appears to be (Japan and the US excepted, for the moment) so is the divergence in the responses to it manifest among central banks; some are easing, while some are tightening.

Meanwhile, file this one under the “caveat investor” category that still remains all-important especially at times such as these. The South Florida Business Journal reports that one “Jamie Campany was sentenced to 12 years and seven months in federal prison for running a gold bullion scam. Campany, 47, of Delray Beach, was charged in June with wire fraud and mail fraud in connection with $29.5 million in misappropriated money from 1,400 investors. He pleaded guilty in August. Campany was the owner of three investment firms specializing in purported gold, silver, platinum and palladium bullion purchases on behalf of individual clients: Gold Bullion Exchange in Lake Worth, and Barclay Trading Group and The Bullion Group in West Palm Beach.”

The news release appears to have gone largely ignored and the article elicited but one reader response. However, the comment caught this writer’s attention because it really does go to the core of the matter as regards precious metals investing. “Croesus” writes: Sadly, the investing public will not learn, and the scam artists will not quit reincarnating under different names. Gold is 'hot' and the temptation to dump money foolishly into it expecting to get rich is strong. Meawhile [sic] the conmen [sic] actually get rich with your money. Once and for all, gold is not an investment; it should not be bought in order to make profits. It is no more than an insurance policy. It is not for the elderly, for those who depend on income, or for anyone worth less than $100K.” Thanks, Mr. {King?) Croesus – could not have said it better ourselves.

Until tomorrow,

Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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