The gold market managed to recover from another downside extension early in the trading session but the reversal seemed to come off a setback in the Dollar and not necessarily because hope for economic recovery or inflation were put into the spotlight. However, generally positive equity market action, higher energy prices and strength in the industrial metals probably prompted some gold shorts to exit and in turn might have prompted some fresh buyers to return to the gold market. In retrospect, the scheduled economic data was a mixed bag with the Factory orders report weak enough to foment renewed economic uncertainty and undermine the Dollar, while the ISM Non Manufacturing report could have provided support for the Dollar and decrease macro economic uncertainty. In the end, the gold market seemed to shake off the negative impact of the Dollar and seemingly benefit from a quasi rising tide in a number of physical commodity markets.
The silver market showed initial weakness but attempted to recover throughout the trading session. However, the silver market seemed to under perform the gold market in the attempt to bounce and for a large portion of the trade Tuesday March silver was content to hold inside of the Monday trading range. Clearly silver, gold and a host of physical commodity markets were attempting to build a positive correlation with US equity prices, which in turn seem to be telegraphing ongoing optimism toward the US economy.”- The Hightower Report, Futures Analysis and Forecasting
David Hale: Only one alternative to the dollar -- gold
The great challenge confronting the foreign exchange market at the start of 2009 is finding a good alternative to the US dollar. One of the ironies of market events during 2008 was that the US financial crisis produced a flight to safety in the dollar. The dollar emerged triumphant from a financial debacle that centered on $1,300 billion of subprime US mortgage loans. The fallout has triggered a $32,000 billion decline in global stock market capitalisation and driven all the Group of Seven leading industrialised countries into recession.
There is not now a clear alternative to the dollar because all big economies have slid into recession. Real gross domestic product could contract by 1.5 per cent in both the US and Europe during 2009 and by as much as 2.5 per cent in Japan. The decline in world trade and commodity prices will also reduce significantly the growth rates of the emerging market economies. South Korea and Taiwan are already in severe slumps. The growth rate of China could halve.
If the US stimulus policy revives the economy by spring or summer, the dollar could rally further. The risk posed by US policy comes from potential market concerns about monetary policy becoming inflationary. The current growth rate of the Fed's balance sheet is totally unprecedented. As a result of the Obama fiscal policy and the troubled asset relief programme, the Federal government's borrowing requirement could rise to $1,500 billion-$1,700 billion this year. Government bond yields have collapsed because of investor fears about the safety of the financial system but they could rebound when conditions normalise. The current level of yields is the lowest since the period of official interest rate controls during the Second World War. Mr Bernanke has indicated that he would be prepared to return to the wartime policy of restraining yields. What remains unclear is whether such a policy of accommodation would provoke fears about inflation and encourage dollar selling, which could in turn drive up bond yields.
Foreign central banks could play an important role in the US government bond market because they already own about half of the existing debt stock. China recently displaced Japan to become the largest holder of US government securities because of its long-standing policy of intervening to manage its exchange rate against the US dollar policy. As a result of the downturn in its economy, China has recently begun to lose foreign exchange reserves and may not need to intervene in the market again to restrain the renminbi. Japan, by contrast, has been experiencing significant upward pressure against the yen despite the severe downturn in its exports and output growth. Japan has not intervened since 2003 but, if the yen rallies another 5 per cent, the country could be forced to spend large sums restraining its currency. If it does, Japan could provide $200 billion-$300 billion of funding for the US deficit during 2009 while Chinese demand for US securities fades.
As a result of the global scope of the recession, there is no country that wants its exchange rate to appreciate. The clear alternative to the dollar in 2009 is not other currencies but that ancient form of money: gold. Precious metals could emerge as a hedge for investors suspicious of central banks and fearful that inflation will be the simplest solution to the challenge of global deleveraging.
http://gata.org/node/7062
Former Bank of England official expects dollar collapse
Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.
The long-held assumption that US assets -- particularly government bonds -- are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.
Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."
He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.
http://gata.org/node/7058
Where We Are Headed: Gold, USD, Oil
by Daniel Smolski
The year 2008 will be written about in finance textbooks for generations to come. The inevitable collapse of the boom, built single-headedly on credit, finally came home to roast. Ironically, further liquidity is what has, thus far, ensured the survival of the system. Having received the rubber stamp for a $700B bailout, leave it to politicians to decuple that number to, a now estimated, $7 trillion. A liability that is set to fall on the shoulders of your kids and grandkids that realistically will never be paid off. By next year, America will join the likes of Japan and Italy with GDP-to-debt ratios in excess of 100%. How will congress dig itself out of this whole? All fingers are pointing to the monetization of debt.
Fundamentally, things could not be looking better for the gold. The printing presses are running on overtime and there seems to be no end to this Japan-style bailout of America. Helicopter Ben is well on his way in fulfilling his legendary promise to never allow deflation. The explosion in money supply has been unprecedented, only comparable to Zimbabwe and the likes of Argentina, Poland and the Roman Empire, among many others. History is plagued with examples of nations that have taken this destructive path. Given the current events, are precious metal markets reacting the way they should be? Many would argue NO.
Gold has kept its own in the face historic redemptions and the rush for liquidity but had one foretold the current events, most analysts would have predicted gold to be four digits in such an environment. The impossibility to purchase bullion the past few months has given further rise to the manipulation argument. Is the proposition that the Fed may have a hand in the gold price so ludicrous a theory? In reference to the 1980s, Paul Volker himself stated “Letting gold go to $850 was a mistake.” Gold has been money for over 2000 years. Watching the price of the dollar plummet in gold terms would signal nothing less than the slow extinction of our dollar. This evident loss in value of our currency is in direct consequence to the Federal Reserve, whose primary responsibility is not to ensure growth (as it is adamantly doing now) but to maintain the dollar’s value (an irony in itself with the dollar having lost 96% of its value since inception).
http://news.goldseek.com/GoldSeek/1231256464.php
Economy rescue: Adding up the dollars
The government is engaged in an unprecedented - and expensive - effort to rescue the economy. Here are all the elements of the bailouts.
http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/
Total:
$7.2 trillion
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