Large Sarge
29th April 2010, 02:30 AM
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Why Gold's Rally Is About Far More Than Greece
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Companies:SPDR Gold SharesPowerShares DB US Dollar Index BearishPowerShares DB US Dollar Index Bullish Related Quotes
Symbol Price Change
GLD 114.31 0.00
UDN 26.12 0.00
UUP 24.11 0.00
{"s" : "gld,udn,uup","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Lance Lewis, On Wednesday April 28, 2010, 2:20 pm EDT
I see a lot of people attributing gold's rally to a bet that the euro is going to collapse. I have a slightly different take that I'd like to share.
Gold is rallying in all the major currencies at the moment which, as I've pointed out before over the past several years, is further evidence that gold's bull market isn't just a weak dollar phenomenon.
But the reason it's rallying now is much more complex than just the PIGS and the euro's decline. The sovereign debt problem is much bigger than the PIGS. It involves the US as well. Ultimately, the problem is with all these Western sovereign pieces of paper. They aren't worth the paper they are printed on, any more than Greek debt is "as good as gold." This is the problem.
Once the market's focus comes off the sovereign debt problems of the PIGS for a while, the sovereign debt vigilantes will simply then turn their guns on the US, and the market knows this. The gold market is thinking ahead (for once), just as it looked ahead and began selling all equities as the various housing-bubble dominoes fell.
At the end of the day, all of these pieces of paper have problems. It's what happens when a monetary system breaks down, and that leaves gold as the only monetary refuge, just as it was after the breakdown of the Bretton Woods system in the 1970s. If the dollar was considered "as good as gold," it would be rallying against gold, and not the other way around. The fact that gold continues to move up in dollars even as the dollar rallies against the euro and other debtor currencies is a reminder that the market see issues with the dollar in the future as well. The same was the case for the Europeans when the dollar was declining against the euro from 2000-2008 but gold was rising in euros as well.
So for all of those rooting for a default in Europe to "rally" the dollar, be careful what you wish for. The problem for the Fed is going to come after the ECB is eventually forced to carpet bomb the PIGS with euros (a lesson it has no doubt learned from the Bambi-led Fed here in the US that prints money at the drop of a hat and is rewarded for it), because once the ECB has panicked and hit the "print" button, that's when the market's focus will then turn to the sovereign debt issues of the US and begin to sell the dollar and US debt.
Gold investors need to look around the corner and think ahead, because at the end of the sovereign debt line of dominoes is the biggest debtor of them all, the US, not the EU.
Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.
Why Gold's Rally Is About Far More Than Greece
Buzz up! 0 Print
Companies:SPDR Gold SharesPowerShares DB US Dollar Index BearishPowerShares DB US Dollar Index Bullish Related Quotes
Symbol Price Change
GLD 114.31 0.00
UDN 26.12 0.00
UUP 24.11 0.00
{"s" : "gld,udn,uup","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Lance Lewis, On Wednesday April 28, 2010, 2:20 pm EDT
I see a lot of people attributing gold's rally to a bet that the euro is going to collapse. I have a slightly different take that I'd like to share.
Gold is rallying in all the major currencies at the moment which, as I've pointed out before over the past several years, is further evidence that gold's bull market isn't just a weak dollar phenomenon.
But the reason it's rallying now is much more complex than just the PIGS and the euro's decline. The sovereign debt problem is much bigger than the PIGS. It involves the US as well. Ultimately, the problem is with all these Western sovereign pieces of paper. They aren't worth the paper they are printed on, any more than Greek debt is "as good as gold." This is the problem.
Once the market's focus comes off the sovereign debt problems of the PIGS for a while, the sovereign debt vigilantes will simply then turn their guns on the US, and the market knows this. The gold market is thinking ahead (for once), just as it looked ahead and began selling all equities as the various housing-bubble dominoes fell.
At the end of the day, all of these pieces of paper have problems. It's what happens when a monetary system breaks down, and that leaves gold as the only monetary refuge, just as it was after the breakdown of the Bretton Woods system in the 1970s. If the dollar was considered "as good as gold," it would be rallying against gold, and not the other way around. The fact that gold continues to move up in dollars even as the dollar rallies against the euro and other debtor currencies is a reminder that the market see issues with the dollar in the future as well. The same was the case for the Europeans when the dollar was declining against the euro from 2000-2008 but gold was rising in euros as well.
So for all of those rooting for a default in Europe to "rally" the dollar, be careful what you wish for. The problem for the Fed is going to come after the ECB is eventually forced to carpet bomb the PIGS with euros (a lesson it has no doubt learned from the Bambi-led Fed here in the US that prints money at the drop of a hat and is rewarded for it), because once the ECB has panicked and hit the "print" button, that's when the market's focus will then turn to the sovereign debt issues of the US and begin to sell the dollar and US debt.
Gold investors need to look around the corner and think ahead, because at the end of the sovereign debt line of dominoes is the biggest debtor of them all, the US, not the EU.
Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.