[Scactha]

US GDP at 1.3% and no cold catched from the sneeze so far (if you follow the allusion)? What´s the assessment from the professionals?

[eXpat]

Asian finance ministers voice concerns about the U.S. dollar , link
South Korean Finance Minister Kwon O-kyu said global imbalances $this->bbcode_second_pass_quote('', 'w')ere their central concern.

"Any abrupt and disorderly unwinding of these imbalances may send a tremendous shock through the global financial markets," Kwon said.

If the dollar falls further on speculation that the U.S. trade deficit can only be rectified by a cheaper dollar, that would give a headache to some Asian countries already nervous about the strength of their currencies.

[Gerben]

$this->bbcode_second_pass_quote('', 'I')f the dollar falls further on speculation that the U.S. trade deficit can only be rectified by a cheaper dollar, that would give a headache to some Asian countries already nervous about the strength of their currencies.

[eXpat]

I came across this article today, link here, and it does IMO a very clear description of the situation of the reserves nowadays:
$this->bbcode_second_pass_quote('', 'I')n the case of empires, a way to gage solvency is, how big is their own reserves compared to the size of these same currency reserves held by potentially hostile rivals? In the case of the USA, we send dollars out as fast as we can print them. If too many people getting this flood of money, around $800 billion a year now!!!!!! If they don't keep a big chunk in bank vaults, the value of the dollar drops. So they keep it in reserve, in case of a 'rainy day'. Like 9/11.

And if we think of these funds as boats, then China has Noah's Ark, Japan has an aircraft carrier, Europe has a holiday cruise liner, Russia has a very fancy yacht and the USA has a rowboat made out of an old bathtub. That is leaking.

China has $1.3 trillion in its reserves and is therefore, King of the Mountain. Japan has $900 billion and is no longer holding new currency so all the red ink in trade is no longer staying away, it is floating back home to here, as inflation. Europe has about $600 billion and Russia, $330 billion. The USA has only $66 billion and the numbers released today by the Federal Reserve shows that number is DROPPING. Yikes.

[eXpat]

I'm not looking forward to the effecs in the US economy if the yuan has a a sharp revaluation :
$this->bbcode_second_pass_quote('', 'C')hina will have to choose between the lesser of two evils, namely the protection of employment in its export-dominated industries or the safety net being created by investments in property and stocks by millions of its citizens. I believe it will choose to protect people's wealth more than lower-end manufacturing jobs; therefore a sharp revaluation of the Chinese currency, the yuan, is certain in the next few weeks.

In its aftermath, the economic cognate will have to shift from production to consumption; therefore we should see the stock prices of exporters falling even as those of companies servicing domestic demand will increase. Banks will have to absorb billions of yuan in defaults from the export sector, particularly to the many inefficient state-owned companies in northern China. That will cause a sharp decline initially in their stock prices, but I expect the outlook to improve rapidly thereafter.

For the rest of Asia, a yuan revaluation would set off increased volatility as investors try to take profits and other Asian countries adjust their currency values. In turn, their holdings of US and European government bonds as part of foreign-exchange reserves would diminish, sending up bond yields globally

[Gerben]

$this->bbcode_second_pass_quote('eXpat', 'I')'m not looking forward to the effecs in the US economy if the yuan has a a sharp revaluation:

[bshirt]

$this->bbcode_second_pass_quote('dr_doom', '
')Do you honestly believe the USD became detached from the gold-standard in 1971, to usher in a new age of never-ending fiat prosperity?

[Mircea]

$this->bbcode_second_pass_quote('Gerben', 'I') don't expect this to happen. I don't believe that China would radically change it's policies to protect the further growth of a bubble rather than to protect its decades long continued growth in the manufacturing industry.

[MrBill]

$this->bbcode_second_pass_quote('Mircea', '')$this->bbcode_second_pass_quote('Gerben', 'I') don't expect this to happen. I don't believe that China would radically change it's policies to protect the further growth of a bubble rather than to protect its decades long continued growth in the manufacturing industry.

[halcyon]

$this->bbcode_second_pass_quote('dr_doom', '
')I think you've got gold totally wrong. The "global liquidity" has been used to more effectively manipulate the price of gold downwards, keeping it within a "safe" trading range. Take a look at GATAs research.

[MrBill]

Halcyon, I am not a gold bug. Each asset at the right price. Central banks may want to sell gold for a number of reasons. To raise capital. To earn interest. To diversify. I am not saying any of these is the correct answer. Or for the right reasons. The IMF would like to sell gold to pay their bills because they have hired too many expensive development investment bankers and no one at the moment wants their advice or their money. There you go.

But as central banks control inflation and inflation is a product of central bank money supply and the levels of interest rates they set then I would suppose the main reason they would like to sell gold is that it is for a central bank quite redundant to hedge themselves from the inflation that they themselves create. Much better to sell gold and hike interest rates while controlling money supply through mandatory deposits.

Of course, when it is another(other) central bank(s) doing the money printing then one may want to keep some protection in the portfolio so to speak.

I used to hold gold as a hedge against a currency that was sinking. But there were other assets I could have held as well. Therefore, as a non-interest earning asset I held that was actually costing me the price of carry (insurance and interest) I decided to sell it and invest that money elsewhere.

In my opinion gold makes nice jewelry. I am not popular for my views on peak oil dot com. Oh well.

[halcyon]

Thanks again for your opinions. To my untrained mind they make sense more than these "gold must rise, there is a central bank conspiracy to keep gold price down" talk that I find no economic justification for.

Maybe that view is correct though, but it's hard for me to believe in it, because it doesn't make sense to me. Maybe I'm just stupid

I see the reasons for selling gold (by central banks) to be more in line with what you propose.

Again, this is NOT to say that gold price may not shoot up, like so many say. I don't have a crystal ball and by the looks of it, the number of gold bugs is increasing, not decreasing.

It's just that I don't understand the irrational gold position so many propose nor many of the arguments give for it's superior hedge position against PO.

Maybe I would understand it, if it made current economic systemic sense and wasn't based on "gold always retains it's value, because it's always valuable" historical truisms. To me that's a circular argument, not a proper causal mechanism.

[MrBill]

$this->bbcode_second_pass_quote('halcyon', 'T')hanks again for your opinions. To my untrained mind they make sense more than these "gold must rise, there is a central bank conspiracy to keep gold price down" talk that I find no economic justification for.

Maybe that view is correct though, but it's hard for me to believe in it, because it doesn't make sense to me. Maybe I'm just stupid

I see the reasons for selling gold (by central banks) to be more in line with what you propose.

Again, this is NOT to say that gold price may not shoot up, like so many say. I don't have a crystal ball and by the looks of it, the number of gold bugs is increasing, not decreasing.

It's just that I don't understand the irrational gold position so many propose nor many of the arguments give for it's superior hedge position against PO.

Maybe I would understand it, if it made current economic systemic sense and wasn't based on "gold always retains it's value, because it's always valuable" historical truisms. To me that's a circular argument, not a proper causal mechanism.

[Micki]

Just to address the question why CB's and/or other major players may want to surpress gold;

First of all Carry Trade.
The theory is that major bullion banks like Goldman&Sachs for instance have leased CB at a low rate, sold it and reinvested the money elsewhere, i.e. treasuries.
A lot of the sales is done on the futures market and if spot price is lower than the futures price they make a profit.
Now analysis by Frank Verenoso (spelling?) /GATA and later by Bank Chevereux indicates that these bullion banks may have leased as much as 10-15000 tons over many years, explains why these organisation may collude to manipulate down the price.
Given that gold/silver price has gone up, the short postions have become toxic positions that they need to cover with increasing desperation.

Why would CB's lease out their gold?
Well as simple reason could of course be that they want to make some interest money.
I don't completely buy that theory (yes to some extent) casue with the amounts leased out there is a fair chance of default and the gold is lost. 1% lease rate don't justify the risk.

More likely is the push for US strong dollar policy.
example; url=http://money.cnn.com/2007/05/15/news/economy/s_dollar.dj/index.htm?section=money_latest]read this article[/url] by James Turk.
Gold is largely seen as the anti-dollar. On a global scale it could be considered as anti-fiat. Financial (fiat) stability therefore justifies (in their opinion?) dishoaring of gold reserves.

Let's go one step further and look at one of my wilder theories;
CB's control gold owned by the people.
Many of the central banks, like the federal reserve, are controlled by private interests like the international banking family Rotschilds.
So for the international bankers to get their hands on the gold for a low price, they need to get the CB's to dump it.
Bullion banks like Goldman are controlled by the same families, so having these lease the gold, sell it to Rotschilds and then default on return of the gold to the CB's basically results in a robbery of people's gold.
Once again, this is just one one of the wilder theories, but play with the thought.


Interesting sidenote is also that silver lease rate on Kitco is
-0.03%, people are being PAID to lease silver to short on the market!!!! Talk about desperation.

[mmasters]

$this->bbcode_second_pass_quote('Micki', 'L')et's go one step further and look at one of my wilder theories;
CB's control gold owned by the people.
Many of the central banks, like the federal reserve, are controlled by private interests like the international banking family Rotschilds.
So for the international bankers to get their hands on the gold for a low price, they need to get the CB's to dump it.
Bullion banks like Goldman are controlled by the same families, so having these lease the gold, sell it to Rotschilds and then default on return of the gold to the CB's basically results in a robbery of people's gold.

[MrBill]

mmasters wrote:
$this->bbcode_second_pass_quote('', 'I')'m actually curious what would happen if there was a huge rush into the gold ETFs, according to those stats the gold etfs have about 13 billion. What if say 50 billion in liquidity were to move into those etfs abruptly?

[mmasters]

$this->bbcode_second_pass_quote('MrBill', 'm')masters wrote:
$this->bbcode_second_pass_quote('', 'I')'m actually curious what would happen if there was a huge rush into the gold ETFs, according to those stats the gold etfs have about 13 billion. What if say 50 billion in liquidity were to move into those etfs abruptly?

[eXpat]

Greenspan warns of recession for US economy, link, if he says so it must be true, after all he helped to make it...

[FoxV]

$this->bbcode_second_pass_quote('MrBill', 'I')sn't the whole point that these ETFs have to buy and hold the physical stocks of the underlying? Gold in this case? Then there would be more buyers than sellers, and if there was not enough physical gold then orders would go unfilled.

[eXpat]

I think that the signs of a big economic crisis are clear for everyone to see, and seems that big companies have started to move away from where it will hurt most, check this article: "American Corporations Getting Rich Abroad", link

$this->bbcode_second_pass_quote('', 'S')econd, America's largest corporations have decoupled from the United States. Their overseas subsidiaries are booming even as their American operations stagnate. General Electric expects more than half its revenue this year to come from outside the United States for the first time. More than half of Boeing's new orders are from overseas. Ford is struggling in America but doing well in Europe.