I’ve been more busy than usual with projects and clients for a few days, so here’s a recap of what has been going on in the last few days:
A lot of things are happening on world currency markets right now. What we are seeing now is a move away from the US dollar, a diversifying by Central Banks as well a move into the only currency with no counter-party risk: gold. The Metal of Kings rose to a new high at 1.060 USD/Oz during the last trading days and today almost 1.070 for a few minutes. Here is a Gold chart from today (14 October 2009):
What many economists, ridiculed by popular press, have been saying for years are now transpiring. I repeat what I’ve been saying to friends and clients many times: Buy gold now, if you haven’t already. A major move is happening and the Comex and LBMA is at the brink of defaulting on physical gold deliveries. Rob Kirby of Goldseek wrote last Friday (9 October 2009):
“Impeccably reliable sources have informed me that as recently as Sept. 30, 2009 – the last possible day of trade in the Sept. 09 gold futures – a number of well-heeled market participants ‘bought’ substantial tonnage worth of gold futures on the London Bullion Market (LBMA) and immediately told their counterparties they wanted to take instantaneous delivery of the underlying physical bullion.
The unexpected immediate demand for substantial tonnage of gold bullion created utter panic in at least two banks who were counterparties to this trade – J.P. Morgan Chase and Deutsche Bank – because they simply did not posses the gold bullion which they had sold short (an illegal act which in trading parlance is referred to as a ‘naked short’).
[…] A premium of as much as spot plus 25 % (that would be 1,250 – 1,300 per ounce of gold) was offered to settle this matter in fiat money instead of the embarrassment of a very public ‘failure to deliver’ on the part of the London Bullion Market Association.
Stunningly, if accurate (and there is absolutely no doubt in my mind that this is not accurate), this means that gold is already in SEVERE backwardation and this fact is being hidden from the public.
[…] To think that anyone wonders why our financial system and fiat money will soon to be TOAST?
This is a major event. When news like this hit main stream, more and more investors will demand delivery and that will be the end of the Comex and the other gold derivatives exchanges around the world.
Dan Norcini, aka “Trader Dan”, writes at JSMineSet.com “US Dollar Crashes Through Major Support Level”:
“Carry traders then beat the Dollar down below critical support near the 76 level on the USDX as they rushed into higher yielding currencies…
[…] The fall in the Dollar is picking up momentum and that is why we are witnessing gold moving into new highs.
But gold is more than a Dollar phenomenon – Gold priced in terms of British Pounds and in Euros is relentlessly moving higher as both Great Britain and Europe, the fading West, are debasing their currencies as well.”
Yes, the US dollar and the British Pound will fall first before the Euro does along with the rest of the currencies of the “fading West”. Fiat paper will last longest in Asia before the ultimate move is made into the ultimate currency – The Metal of Kings:
“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.”
- Norm Franz http://mellgren.com/category/quotes-on-economy/
The move below the support level at 76 in the USDX is the key. Trader Dan adds in this chart (PDF) that “A meager 38% retracement was all that the Dollar could accomplish before it was beaten mercilessly”. The USDX is falling back to the level it had (at 70) during the Lehman crash of 2008 before the huge deleveraging caused the US dollar to climb as institutions paid back their US dollar denominated debt.
Bloomberg picked up the trend on October 12:th with the headline “Dollar Reaches Breaking Point as Banks Shift Reserves”:
“Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
[…] Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
[…] The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend ‘accelerated’ in the third quarter.
‘People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.’”
Meanwhile the worlds major oil producer Russia negotiates a deal with China, the second largest oil consumer, BBC reports:
“Russia is hoping to sign deals worth $5.5bn (£3.5bn) with China as Prime Minister Vladimir Putin visits Beijing.
[…] Trade between Russia and China has risen from less than $10bn to more than $50bn annually over the past six years.
The heart of the relationship is Beijing’s thirst for Russian energy - oil and gas make up more than half of Russian exports to China.
Earlier this year, Moscow signed a $25bn agreement to help fund a pipeline to supply oil from Siberia to China. In exchange, China was guaranteed a 20-year supply of crude oil.
[…] The countries hope to expand the amount of business they do in their own currencies, rather than the US dollar.”
Yes, Medvedev and Jintao is moving away from the US dollar and will settle this 20-year-deal in their own currencies. You should also move away from fiat paper of the west and move into your own currency: gold. Be your own banker, as a friend of mine says.
Also, in Swedish financial paper “Dagens Industri”, Steve Barrow, a currency strategist makes a “bearish call” for the Swedish Krona noting that the balance sheet of the Central Bank of Sweden, The Riksbanken, has swollen by 150% since September 2008 – more than that of the Federal Reserve. This is telling us that no fiat paper currency of the “fading West” is a safe haven.
