bitbigt

Some charts posted here yesterday showed how well gold has tracked EUR:USD - but only since the US started lowering interest rates this last year or so.

Money week has today written an article on how the EURO is about to tank...

*******************************************

We've been more than a little downbeat on the outlook for most 'developed' economies for a good while now. So it's been no great surprise to see that the rest of the financial pundits are finally coming round to the idea that the global economy is heading for trouble.

But while there seems to have been more or less a straight fight between the States and us as to who actually plunges into a recession first, within the last few weeks another strong contender for this dubious prize has emerged. The eurozone now looks like it could get a dose of recession before either the US or the UK.

That means the euro could well be about to fall off its perch and join the ever-lengthening list of the world's ill currencies. That'd be good news for the dollar - and maybe even the pound

Anyone who has been keeping an eye on Spain's troubled economy won't be too surprised to see that the eurozone is really struggling. The Hispanic housing market is collapsing - sales are down 34% from the peak, say the latest official figures - and the banking system is on the brink, according to Morgan Stanley.

"A momentous economic slowdown in Spain is now under way, though just in the beginning stages, with the bulk of the pain to be suffered in 2009", says the investment bank, going on to warn that "the probability of a crisis scenario similar to the early 1990s is increasing".

Meanwhile unemployment has already reached 10.4% and the country's finance minister recently admitted that: "the economic situation is worse than we all predicted" we thought it would happen slowly but it has hit fast".

It's not just Spain. In Ireland too, house prices are tumbling, with Dublin seeing double-digit falls. New housebuilding has hit a five-year low. And over in Italy, things aren't so hot on the economic front either. Last weekend Prime Minister Berlusconi said he would now be slashing government spending as tax revenues have slumped.

But let's be fair here. Trouble in these countries isn't exactly a surprise - Ireland was heading for trouble from the moment it joined the eurozone, as low interest rates poured petrol on an already blazing economy. Spain was the same. And as for Italy, it's rarely far from economic strife.

Surely the countries at the real core of the eurozone - France and Germany, in other words - are looking a bit more stable? Well, it seems not. After holding out pretty well during the first half, by mid-July, business confidence was declining abruptly, as the German ZEW economic sentiment indicator suddenly plunged, unexpectedly, to a record low. French business confidence has also dropped away.

Then last week, the overall eurozone activity survey plummeted much more sharply than the 'experts' had expected, to its lowest point since March 2003.

What's more, European companies are starting to default on their debts, says Dresdner Kleinwort, which believes that as many as 6-7% of corporate borrowers may fail to pay their debts on time within the next year. That's a tenfold increase in the estimate since June and, says Moody's Investors Service, the highest default rate since July 2003. Add in Tuesday's 0.6% drop in retail sales for the region, and the picture we're seeing emerge isn't at all pretty. Because things have got worse so fast that the eurozone now looks like a racing certainty to beat us Brits into recession.

It all points to a sell-off in the euro. Sure, the alternatives may not be great, with both the US and the UK apparently competing to see which can prove the bigger basket case, but to quote one of the oldest market truisms around, currencies are a 'zero sum' game.

If one falls, another has to rise. And while it's very hard to make a convincing case for the dollar, or indeed the pound, all the signs from the continent are that the euro faces even more problems.

Pimco bond fund manager Bill Gross recently said he sees no reason for "the euro's 25% to 30% overvaluation against the US dollar", while BNP Paribas also declared: "we're turning incredibly bearish on the euro." It's starting to feel like the dollar, currently trading at around $1.55 to the euro, might just be bottoming out against its continental European cousin. And maybe sterling, which over the last five years has tended to move more or less in line with the buck, could get a ride on its coat tails.

*******************************************

...I personally think the very different interest rates in Eurozone and US, and the different remit of the two CBs (US to promote growth, ECB to fight inflation) means that the Dollar and Euro are now in the ratio they should be. Yet BOTH will weaken further relative to an international basket of currencies.

Optimally, gold would as well. And isn't gold inflation in line with global growth in population (2%)?

Your chart is currently based on the logic that: if you double the number of people (and so double their GDP and M3) then they'd all go out and spend an equal amount of money on gold which has been mined at twice the rate.

An even more bullish case would be made if you assumed the logic that: if you double the number of people (and so double their GDP and M3) then they'd all go out and spend an equal amount of money on gold which has NOT been mined at twice the rate (since the planets resources are limited) OR they even spend more on gold than before, because demand starts to exceed supply.

I was suggesting a plot of the worst case scenario for golds bull case: if you double the number of people (and so double their GDP and M3) then they'd spend no more AS A GROUP on gold. [i agree this seems less believable logic]

For this last option: If the population figures per year aren't available, I guess we can just say an approximate doubling, which means the end of your chart would be twice its current height. ...still showing gold as not overpriced, and that's the worst case and hard-to-believe one of the three rationalities presented above

Gold versus M3. Not exactly expensive, that gold.

I wonder if it wouldn't be more informative to first divide M3 by the global population - on the basis that money will scale populations grow whereas gold does not.

However, the correlation with the dollar is still very stong and from a technical perspective, this is what is holding gold back. The euro/dollar is right at the bottom of it's trading range at the moment, it'll be interesting to see where it goes from here.

Excellent charts, thanks!

Do you have the raw data from these to determine the correlation coefficient between the two?

The only reason the [gold] price has not gone to the stratosphere yet is central bank manipulation through surreptitious dishoarding (swaps/loans) and derivatives (options/futures/ETFs) which are used to divert demand from the real thing. When (not if) the market figures it out it will be a sight to behold.

Absolu-bl00dy-lutely!

And remember also, the worlds population has increased dramaticaly in the last several decades, plus the average person is far wealthier in real terms than 30 years ago (so more likely to want to buy some gold)

But hey - lets face it, the PPT is not going away. So unless they run out of funds to manipulate markets and/or get swamped by prices rocketing due to big-boy speculators (new longs and panicking shorts) then we may not see gold at the price it 'should' be expected to reach. But even with the PPT manipulation (which I judge is simply scaling gold's price down by 50%), the underlying uptrend is still real and far from finished.

2) Why compare the price now to the price at the peak of a very short-lived bubble in 1980. Why not look at the average price in the 1979-82 period which was, what, $300-350? At which level the current price looks about right, if there isn't another spike.

I very much agree with this critque...

...but even running the numbers at 300-350 USD gives a current price expectation of 1250 - 1450. And that's assuming there is no global inflation and devaluation problem. which there clearly is. So a peak above 1250 - 1450 would seem to be quite probable.

Its a bit concrening that Gold seems to be falling faster than Oil due to the fact that it is possible Oil could bottom in the $80-$100 range although I suspect $100 is probably the floor but it means Gold probably still has further to fall.

I'd caution that - according to contrarian logic - as soon as everyone starts to think this way that's just when a sudden jump up in price is likely to happen ...could even happen today!

Looks like gold lease rates have gone negative again!

I'm sure some of you can explain this, but I've not had much luck finding an explanation that I have much confidence in, so far.

I've always assumed its down to plain and simple market manipulation (paying people to borrow gold so they can and do short it)

But its interesting, and encouraging, that the 12 month rate has started to rise significantly in the last few days.

Ditto that, Steve ! I elected to sit out the choppiness and stop trading once we broke down through $950 so I guess this drop hasn't bothered me as much as some of the brethren insofar as my physical holdings are concerned but, as I said, nothing's changed fundamentally. Still plenty of landmines waiting to go off . . .

To reassure myself I've just spent the evening correlating oil, gold, stock charts etc, to try to pin down what's going on these last days. ...trying to be as objective as I can!!!

It seems that, quite simply,

- general fear is decreasing (suggestions that banks are past the worst, oil supply is adequate, CBs will take care of everything)

- and so faith in the dollar is increasing

...hence, why own or buy gold?

So I asked myself, are we past the worst of the loose money big unwind, and is Asia going to slow significantly so using less oil. ....NO WAY!

Also, I can't see oil falling to less than 100-110 (i.e., we're nearly there) and I can't believe the stockmarkets have bottomed.

Therefore, in a few weeks time it has to be possible or even likely that (just at the time that gold's annual buying period hits) the dollar will weaken again, oil will stabilise or even increase, and stocks will then take another tumble. ....in short, gold will be set for a nice upswing.

But what happens between now and then? ...well other than saying this will be a good buying period, and noting this would be difficult period to daytrade, its anyones guess.

My guess - we're now at or near the bottom. ...so I plan to buy more silver anywhere below 16.3, to add to my other chunks bought at 17.0 and 17.1 (which I still think were good deals!)

Hang on in there comrads

start of a run up??? ...US to the rescue!!

I'm glad most of you seem to be enjoying this dip in G & S. No, really! Personally I prefer not to lose money in something I've already invested in so that I can buy at a lower price. But hey, at least some of you are happy, even if I'm pretty miserable!

Hi Bobsta - As you know, this volatility is the price we pay for investing in PMs.

Perhaps this might help a little...

...Most of this recent drop is down to the strengthenning dollar. In pounds your investments are essentially no lower than the bottom we tolerated one week ago.

I thought prices were much lower than this, and so got myself ready to buy some more silver just 10 minutes ago (16.7 with pound at 1.954 USD). Then I realised the above, and decided I'd want a much bigger drop still before it would make sense to add to my last weeks purchase (17.1 when pound was at 1.995 USD)

what a sell-off in oil! gold holds better

Oil price dropping is GREAT for the price of gold....

As the price of oil (POO) rises, the effect is to increase the cost of pretty much everything, and that means inflation ...which is bullish for gold

But as POO goes even higher, it reaches a point where it acts as a brake on the global economy, and that threatens deflation/recession.

At 130+ it was in that latter realm, but now its dropped into the 100-130 zone then its now exactly in the 'sweet spot' for promoting inflation.

Give the markets a few weeks, and they will start to realise this!

[As the saying goes: "be careful what you wish for" Mr PPT]

i don't know, but this looks to me like the V-shaped bottom Jim Puplava was saying about, and if he is right, there will be no 110 oil! If we are speaking about hyperinflation here, the 120 oil is equal to 110 oil a year ago just in "normal" 10% shadow-stats terms .... dollar rally? haha!

so far 125 level vas passed, monday will be the consolidation and tuesday probably test of 132. as for gold, maybe we are going even higher, to the 1000 level instead of 950. we have to watch oil very carefuly.

Over next few months, I woudn't be surprised to see a smallish rise in POO for a few weeks, followed by a big drop to 100 justified on the basis of 'unfolding global slowdown'. Plus the PPT will do all they can to help it fall. But looking at next few years, prices will go very high and 150 dollar oil will seem cheap!

Gold, however, doesn't seem to care too much what oil does between 100-150. Instead, gold seems to rally best when the dollar tanks ...and that's what I suspect we'll see this autumn. Add in the autumn rally in gold prices (mid Aug to first 10 days of Sept), and there's every chance we'll see gold touch 1200 by year end.

Next week may well see some strengthening of gold (getting ready for a big increase) but I doubt we'll see a big change on Monday especially.

..and watch the subsequent downward revision of job numbers go completely unnoticed..

...and unreported by the (politically manipulated) media!

Breakout such a lovely song. Them were the days (and the days before it) when there was culture.

...showing your age

Silver bounced wonderfully - 4% in a few hours. That shows what's possible. ...but watch out for another smackdown tomorrow. The PPT will have noticed silvers bounce, plus the bounce in oil prices again today.

Well I go that one wrong ...I'm pleased to say (having bought at 17.1 last week)

...but tomorrow is another day, and a Friday at that!

However, I still think gold and silver are not going any/much lower before a big run up.

One other good thing - I capped by electricity and gas bills last Friday with British Gas, at a 10% increase. So given their 35% increase yesterday, that's a 25% relative saving - providing another few hundred quid extra I'll now be able to invest in gold

Hi All - just got back to the 'puta after travelling for 2 days ...and wow!

It really seems like gold is not happy to go below the low 900s, and given that August is upon us (i.e., we're only 2-3 weeks away from the annual strong period) then I suspect we're at or near the low before a massive run up. As soon as the current smoke and mirror good news (e.g., US gov buying up bad mortgages, and their 'OK' jobless figures) is seen for the fallacy it really is, then a massive jump in PoG should occur. Jim explained this far better than I can when he said "the system is broken and has to be artificially held up because there is no other practical solution"

Silver bounced wonderfully - 4% in a few hours. That shows what's possible. ...but watch out for another smackdown tomorrow. The PPT will have noticed silvers bounce, plus the bounce in oil prices again today.

Finally, on oil, I am expecting a bottom of 100-110, and will start buying at 110. If DrBubb is correct and it falls as far as 80 (which seems a bit low, but possible), I'll just keep buying as I fully agree with him (her??) that we'll be seeing several hundred dollar oil in the next few years.

Overall, this volatility is great - it's a blatant indicator that the worlds economy is going crazy, and when that happens gold is where you need to be!

I suspect Paul Van Eden identifies a "bull market" with singular upward "waves". For example he talks about a "bull market" in gold from 2005 until May 2006.... then another "bull market" from August 2007 until March 2008.

 

Most other commentators recognise what Eden refers to as "bull markets' as "waves", or stages, with these waves belonging to a longer secular market, in which there are both upward and downward waves. They also refer to these long term trends as a "bull market". It seems the semantics here is what leads to the confusion; different people are defining a bull market differently.

That's a very good summary 'romans holiday'

From that interview, one mght also argue that if gold is now at some kind of 'fair value' based upon the old 20 dollar coin metric, then its been undervalued for many recent years. And as we know, when prices of things race up (as gold has been) to meet their fair value, they usually overshoot. Hence, the prediction would be that gold should go much above its current fair value during this current longer bull market

"Congress Approves Housing Market Rescue Bill"

http://www.cnbc.com/id/25862539

another motive for traders to drive the $USD higher on monday

I agree they'll maybe choose to see this 'intervention' as evidence of government support and a reason for increased confidence in the US and the dollar.

But surely, what this Housing Market Rescue Bill really means is that the whole nation is now to carry the risks/losses of all the reckless individuals and banks that bought houses on loans they couldnt afford. Not only is this really unfair on the financially responsible members of the US society, but it involves allocating another massive slice of the limited reserves the fed can deploy to fix the economic woes of their country. That, for me at least, would be reason to loose faith in the dollar!

This [low gold lease rates] suggests that shorters are getting tired.

That is hopefully part of the explanation, as this is necessary for gold to rise. However, the rate going negative would suggest the alternative explanation - "central banks are arbitrarily lowering rates to inject more official gold surreptitiously into the gold market".

The PPT has only got so many levels to pull, and so much cash to blow - and I think they're becoming stretched

About is it too late? In my opinion certainly not, but if you can buy soon, I'd say do it before the end of August. Big increases in gold price tend, on average, to occur in the September to end of January period (although not every year is the same).

Hello Wigler.

I'd support wren's comments, but suggest that the autumn rally in prices is often strongest between mid-August and mid-September, so waiting until end of August might be a bit risky.

More generally, I believe that 10-40% of ones available cash should be in gold (I'm at 35%). Certainly not 100%

...and then cross all your fingers like the rest of us

We're here ....I just bought silver at 17.11 [decided I was too greedy waiting for 17.00 ]

....but c/should have

Where are the buyers? Seems to be in a right proper Au plunge.

We're here ....I just bought silver at 17.11 [decided I was too greedy waiting for 17.00 ]

Thu Jul 24 17:12:25 UTC 2008

Most probably we just saw the bottom.

I'd agree. Though there could be a very transient dip in price tomorrow, and I've decided that if this involves silver going below 17 then I'll buy some. ...and I'm very demanding for how low things should be before I buy.

yet again i feel like im living in a parallel universe at the moment - US Govt to bail out Fannie and Freddie and Gold goes down

Indeed. Why can't the PPT just keep there mits out of it...

...oil would stay high, gold would spike, a natural and needed slowdown would follow, inflation and gold would fall naturally, dollar would not be so pressured, and we could all get back to rebuilding our economies from a sensible starting point - without having wasted untold billions of taxpayers money on their misguided manipulation excercises.

They're basically running up a down escalator, using up our energy (money) in the efforts to do so. Why not instead save that energy, accept the ineviatble journey to the bottom, and then get on the far more effective up escalator?

Damn PPT really are some kind of well-meaning but short-sighted busy-bodies: doing more harm than good in the long run. That's clearly the lesson from all previous periods of economic turmoil!

...Yes - I'm angry!!!! ...off to a nice warm bath to calm down, and read MoneyWeek