The Fabled, Proverbial “Au Thou”
This morning, Bloomberg shows gold (I think it’s Comex gold) at $1,005.60.
An urgent meeting of Club 1033 ($1,033 being the earlier record high) has been called to discuss this important development.
Excuse me a second while I celebrate —
To all you goldbugs out there, we salute you. (just don’t get too cocky)
Since I know that every gold bug just loves Jon Nadler () I thought I would share his excellent post today, just in case anyone missed it.
The “guns-and-gold” crowd is once again declaring TEOTWAWKI and is urging fellow unprepared militants to buy the metal even at this price, while others see nothing but the set-up for a huge disappointment in this spike due to what they allege is a vast conspiracy to sucker in the little people with empty vessels such as the GLD ETF which is -in their minds-bereft of any real gold. Like we said, emotions flare up at such moments in time. Just remember that we were also supposed to have returned to work today, only to find a banking system that had been shut down for an ‘indefinite’ holiday by US authorities. Seems like a lot of US embassies will get stuck with wads of foreign cash now…
Clearly, the central item of focus shaping the drama in the gold market remains the US dollar and ho it is being perceived by various bettors. A raging battle is unfolding between those who see and/or demand a de-throning of the hitherto global reserve currency versus those who see a new paradigm emerging for the US economy and US consumer and thus a new dawn for the American currency as well.
The greenback bears continue to point to recent noises made by China, Russia, and now the UN about the desirability of replacing the greenback with something else more ‘adequate’ for the global economic system. Suggestions have ranged from increasing SDR usage to all kinds of ‘soft pegs’ but nothing concrete has been blueprinted as yet. The bears also fret about the US current-account deficit and are putting the onus on President Obama to address the issue aggressively. Dollar collapse? Any day now.
Dollar bulls on the other hand, correctly question what that ‘something else’ might be and/or what country it originates in. They also add that the dollar will benefit from the inevitable (and already underway) rise in the US savings rate and the shift in the American economy to more of an export-based model. US savings rates had collapsed to zero in April of last year but have now risen to 6% and they still might have some way to go. The yield on US 10-year bonds is running nearly 4% higher than overnight inter-bank lending rates- a differential that some analysts say makes US debt highly desirable. Dollar collapse? Nah. Dollar resurrection.
And that, folks, is what we mean by emotions.
Here are more details from Bloomberg on the UN proposal to replace the dollar, mentioned in JAG’s post above:
Sept. 7 (Bloomberg) — The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.
UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”
An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.
“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”
This chappie Heinie Flashback (I’ve intentionally mangled his name to make it sound ridiculous in English) has a lot of nerve to call the dollar a “confidence game” — and then propose to replace it with a global-scale confidence game.
He breezily cites Bretton Woods and the European Monetary System in the same sentence. But there’s no comparison. Bretton Woods was a fixed exchange rate system, with the US dollar as the gold-backed central reserve currency. The EMS is a “pure fiat” system, whose euro currency is not redeemable.
The former gold standard served to align purchasing power parities automatically. Countries which overinflated would lose gold via redemption, which in turn would bring down their domestic price levels.
Instead of this simple, self-regulating system, Herr Flashback wants to empower hundreds of “smarter than the market” global bureaucrats to “monitor” exchange rates. His system also would retain the economically unproductive role of thousands of currency traders — particularly those with insider connections, who could front-run the new global banksters.
Needless to say, the UNCTAD global currency proposal is corrupt, foolish and worthless. But to the extent that this silly outburst from the intrepid fiateers helped push gold over $1,000, let’s give them a golf clap. Go, Heinie, Go! Go, Heinie B. Goode …