The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Dollar Tanking Against Gold & Foreign Currency

Posted by iusbvision on November 19, 2009

And government policy as well as Federal Reserve Policy is encouraging it.

The world is screaming at us to stop the furious pace of printing and burrowing, foreign banks want out of the dollar, the oil producing nations are soon to abandon the dollar for oil swaps. They are behaving as if they believe that we are trying to exercise political control over our banks and blow up our own currency to either pay off the debt by monetizing it and/or blow up the US Dollar for the purpose of establishing a new currency in its place. Either way this will have the effect of great damage to our economy, wiping out the value of peoples savings and creating yet another ecop0nopmic crisis that the government can use as an excuse to take more control.

Bloomberg News:

Gold Futures Rise to Record on Speculation Dollar Will Decline

By Pham-Duy Nguyen and Nicholas Larkin

Nov. 11 (Bloomberg) — Gold surged to a record $1,119.10 an ounce in New York on speculation a decline in the dollar will spark demand for the precious metal as an alternative asset.

The metal climbed for the eighth straight session, the longest rally since January 2006. Before rebounding today, the dollar extended a slump to a 15-month low against a basket of currencies. India’s central bank bought gold last month to diversify reserves.

“The interest that central banks have shown for gold has really lit a fire under the market,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “People are questioning the value of not only the U.S. currency, but all paper currencies. Investors are more comfortable holding gold.”

Gold futures for December delivery climbed $12.10, or 1.1 percent, to $1,114.60 on the New York Mercantile Exchange’s Comex division. The price has jumped 7.1 percent this month, while the dollar dropped 1.5 percent against the currency basket. The metal is headed for a ninth straight annual gain.

Gold for immediate delivery jumped to a record $1,118.88.

The dollar has declined more than 7 percent since December, when the Federal Reserve cut its benchmark lending rate close to zero percent to pull the U.S. economy out of recession.

Dollar Outlook

“The dollar is not going to get any firm footing with rates at zero,” Zeman said. “The dollar is going to continue to be the victim of the carry trade. People are selling dollars and putting it in higher-yielding assets. All commodities are going higher.”

 

With the benchmark lending rate at zero (The rate at which the fed and some other top banks lend money to its most credit worthy customers) those customers are burrowing dollars now to buy gold, silver, Chinese investments, or Euro’s witch are going up. Since the value of the dollar is falling the dollars they are peying back are worth less than the dollars they borrowed. The affect is that they are creating a bubble of such assets and inflating their value while pushing the value of the dollar down and making servicing our foreign debt less attractive.

Question – what if that asset bubble bursts like the mortgage bubble did?

Bloomburg News:

U.S. stocks extended a global advance, sending the Standard & Poor’s 500 Index to a 13-month high, as China’s industrial production surged and Federal Reserve policy makers signaled interest rates will remain at a record low. Gold climbed to an all-time high.

AP:

A weaker dollar may boost the nation’s economy by increasing exports and narrowing the trade gap — but that won’t happen anytime soon.

Instead, the nation’s trade deficit rose in September by the largest percentage in a decade as U.S. exports grew for the fifth straight month, but imports rose faster, a government report showed Friday. That trend is likely to continue until the middle of next year, economists said.

UK Telegraph:

Barrick shuts hedge book as world gold supply runs out.

Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world’s top producer Barrick Gold.

Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.

“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.

AFP/Yahoo:

Dollar falls, sending gold to record high.

LONDON (AFP) – The dollar fell on Monday as China accused the United States of increasing protectionism and following unexpectedly strong Japanese economic growth figures, pushing gold prices to a record high point.

US President Barack Obama is in China for a three-day mission aimed at convincing Beijing that Washington is its partner, not its rival.

As the dollar dropped against the euro and yen, gold struck an all-time peak of 1,133.20 dollars an ounce.

In late morning trading here, the euro climbed to 1.4969 dollars from 1.4918 dollars late in New York on Friday.

Against the Japanese currency, the dollar fell to 89.42 yen from 89.66 yen late on Friday.

“Far better than expected Japanese third-quarter GDP data…spurred risk appetite,” said Jane Foley, an analyst for online trading firm Forex.com.

“This pushed the euro close to 1.50 dollars in early European hours.”

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5 Responses to “Dollar Tanking Against Gold & Foreign Currency”

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