Tuesday, October 12, 2010

Global Currencies Give The US Dollar The One Finger Salute

The Precious Metals appear again today to "be at rest' awaiting the next catalyst to drive them ever higher. The inability of these markets to follow through higher on their opening gaps in Asia Sunday night would seem to indicate that uncertainty is the prevailing sentiment at this time.

With dip buyers in abundance, and shorts below the markets happy to get out at less of a loss on the dips resulting from this bout of uncertainty, the Precious metals look content to consolidate their recent gains here. This of course would be preferable to the bulls in the market instead of a "correction" in price.

It should be noted, regarding a "correction", that the "relative prices" of Gold and Silver are very low at this time, and do NOT warrant a significant correction at this time. Relative prices reference correcelations between their 50 and 200 day moving averages. For instance, Silver usually "corrects" in price when it's 50 day moving average is 25% or more above its 200 day moving average. Today, Silver's 50 day moving average is just 5% above its 200 day moving average. Gold's is only 2%.

Adam Hamilton has done a great deal of research on this measurement metric. You can learn a lot by reading his past essay's on the subject. You can start by reading this essay posted by him one year ago: Relativity Trading

At this hour the US Dollar is probing 15 year lows vs the Yen. The Chinese Yuan is down on news that the banks are determined to fight inflation. This must thrill Little Timmy Geithner and his cronies in Congress desperate to see China raise the value of the Yuan. Of course, as the Fed prints more money, they export inflation around the globe. The Chinese are within their rights to fight it, and give the US Treasury the finger in the process.

China raises bank reserve ratio for some banks
SHANGHAI — China's central bank has ordered six lenders to temporarily increase the amount of money they must keep in reserve to rein in lending and combat rising inflation, state media said Tuesday.

The People's Bank of China on Monday hiked the reserve requirement ratio for the six lenders by 50 basis points to 17.5 percent for two months, the China Securities Journal said, citing unnamed sources.

The six banks include the four major state-owned lenders -- Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China, the report said.

The other two lenders are China Merchants Bank and China Minsheng Banking Corp, it said.

It is the fourth time this year that China has raised banks' reserve requirement ratio and comes after new lending in September "significantly exceeded regulators' expectation", an unnamed source was quoted as saying.

The move is also in response to rising inflation, the source said, which rose at the fastest pace in nearly two years in August, as severe floods and unusually hot weather destroyed crops, driving up food prices.


Finance leaders fail to resolve currency dispute
WASHINGTON – Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.

Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises projectionist barriers to imported goods.

The International Monetary Fund wrapped up two days of talks with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.

World Bank President Robert Zoellick said the rising economic tensions reflected a weak global recovery.

"A lack of growth accompanied by high unemployment is having consequences," Zoellick told reporters at a news conference concluding the IMF-World Bank meetings. "There is a danger that countries will turn inward and, as a result, international cooperation falters. This could be dangerous."

The communique essentially papered-over sharp differences on currency policies between China and the United States.


IMF Fails, Gold Shines as Currency Wars to Continue
Eric King, KingWorldNews.com
The IMF was unable to stem the tide of competitive currency devaluations over the weekend. As a result, governments and central banks around the world still have the green light to continue with their money printing orgy. Some of the citizens of these various regions and countries have recently been acting as their own central banks by purchasing gold as insurance against the currency wars. As fears escalate, the question now becomes, when will the people of this world once again have a stable system of currency?

Here is a new piece exclusively for the King World News blog from Ben Davies, CEO of Hinde Capital which sums up the situation nicely:
October 10, 2010

IMF At The Epicenter Of Currency Earthquake
By Ben Davies, CEO of Hinde Capital

October 10 (King World News) - Henry Hazlitt was the modern literary agent of libertarianism. At the advent of Bretton Woods he stood alone in his New York Times editorials condemning the monstrosity, as he termed it, that was the IMF. He considered this entity no different to the Federal Reserve Bank. Another organization espousing the values of economic growth and price stability. In reality, they were both merely agents for the propagation of money to aid and abet the continuation of the flawed policies and practices of a country. In the case of the IMF they called on loans from member countries to 'bail out' bankrupt nations globally. The IMF prolonged the inevitable misery and didn't address the issues that got the country into difficulties in the first place.

Emergent nations once patronized by IMF bailouts and inappropriate 'conditional love' have put two fingers up. I can almost hear the BRIC nations silent mutterings, "Why should we 'flex' our currencies to assist the developing nations who so highmindedly leered over us in troubled times passed and revelled in our misery."

Bretton Woods was possible due to the economic strength of US. The Plaza Accord was permitted because it was in the best interest of the US. The Louvre Accord which tried to arrest the efforts of the Plaza Accord of two years earlier, ironically, was permitted because it was in the best interest of the US.

The US and developed nations no longer wield power anymore. " IMF who? " the BRIC’s cry. Right now the emergent nations are more content to say "our currency, your problem". Unfortunately the West, particularly the US have returned the favour, "our bonds, your problem" and so the stalemate will prevail.

Unfortunately as each day passes, the friction of the global monetary fault lines grow stronger. These fault lines will release their energy in the largest world monetary earthquake known to man, as we witness the inevitable demise of the fiat currency system - as all such systems have failed before, leaving not one survivor.

As currency wars escalate, it is wise for individuals to have a presence outside of the system by owning gold.


Currency wars are necessary if all else fails
By Ambrose Evans-Pritchard
The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around.

Each country is doing so for understandable reasons: Japan to avoid a deflationary crisis, China to hold together a political order that is more fragile than it looks. In both these cases they are trapped because they clung too long to a mercantilist export strategy, failing to wean themselves off American demand when the going was good.

Yet this is an intolerable situation for the US. It should be no surprise that Washington has begun to retaliate in earnest, and not just by passing the Reform for Fair Trade Act in the House (not yet the Senate), clearing the way for punitive tariffs against currency manipulators.

The atomic bomb, of course, is quantitative easing by the Federal Reserve. America has in effect issued an ultimatum to China and G20: either you stop this predatory behaviour and agree to some formula for global rebalancing, or we will deploy QE2 `a l’outrance’ to flood your economies with excess liquidity. We will cause you to overheat and drive up your wage costs. We will impose a de facto currency revaluation by more brutal and disruptive means, and there is little you can do to stop it. Pick your poison.


Currency Rift With China Exposes Shifting Clout
WASHINGTON — At a private dinner on Friday at the Canadian Embassy, finance officials from seven world economic powers focused on the most vexing international economic problem facing the Obama administration.

Over seared scallops and beef tenderloin, Treasury Secretary Timothy F. Geithner urged his counterparts from Europe, Canada and Japan to help persuade China to let its currency, the renminbi, rise in value — a crucial element in redressing the trade imbalances that are threatening recovery around the world.

But the next afternoon, the annual meetings of the International Monetary Fund ended with a tepid statement that made only fleeting and indirect references to the simmering currency tensions.

The divergence between the mounting anxieties over Chinese policy and the cautious official response was a striking display of the difficulty of securing international economic cooperation, two years after the financial crisis began.

Above all, officials say, the crisis has shifted influence from the richest powers toward Asia and Latin America, whose economies have weathered the recession much better than those of the United States, Europe and Japan.

“We have come to the end of a model where seven advanced economies can make decisions for the world without the emerging countries,” said one European official involved in the weekend talks. “Like it or not, we simply have to accept it.”


The demise of the dollar
By Robert Fisk
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

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