That’s Right! Gold Hasn’t Changed

The non-dollar currencies didn’t move much yesterday, the euro (EUR) bumped up and down against the 1.50 figure, while the Aussie dollar (AUD) did the same against 93-cents, and the Swiss franc (CHF) against parity… So the currencies are trading in the same clothes they went to bed in last night!

The Big Dog, euro, did attempt to move stronger into the 1.50 level, but that move was thwarted by a poor reading of German Investor Confidence this morning. German Investor Confidence – as measured by the think tank ZEW – reported that their index had fallen to 51.1 this month versus the 56 in October. Most of those Germans surveyed said that they expect the economic recovery to be slow once the government removes the stimulus in the economy. So… Previous euphoria is being replaced by realism… But that’s OK… Better to have a grip on reality than to go around thinking that everything is seashells and balloons.

But, the ZEW report hasn’t dampened the euro’s spirit too much, as the single unit has remained above 1.50 even after digesting the ZEW… But looks vulnerable.

The ZEW report gets all the ink… But on the back page we can find that German industrial production increased 2.7% in September compared with August, which saw a 1.8% rise.

Hey did you know that the US is auctioning off another $81 billion in Treasuries this week? Yes, this total is lower than the recent auctions the US has held… But still… $81 billion isn’t anything to ignore! However, with the nutcases in the world, shooting off missiles, and ramping up nuclear capabilities, there are still some people who believe that US Treasuries are a “safe haven”. Of course I’ve proven that those who believed this and bought during the financial meltdown, lost tons of money… But don’t let that get in they way of a “good story”… And so it will be, that this auction will not be the “one that fails”… But, in my opinion, we will experience that at some time in the next year, especially given the government deficit spending!

And… If an auction of US Treasuries fails… Well… Being long Treasuries isn’t going to look too much like a “safe haven” position!

I was supposed to give a presentation last week in Los Cabos on the Treasury Bubble… Of course, we all know that I was not there, so I didn’t give the presentation… UGH!

OK… There was all kinds of rumbling, stumbling, bumbling going on in the UK overnight, as the rumors were flying that the ratings agency, Fitch, said it would lower the UK’s AAA rating… Finally it was confirmed that this was stated in an interview with Reuters, and not an official communiqué by Fitch… But, dear reader, when there’s smoke like this, you can bet there’s fire! The pound sterling (GBP) has taken this news like a blow to the mid-section…

In Australia overnight… Australian Business Confidence rose to near 6-year highs for the index… October’s index reading was 16, which was plus 2 from September’s index reading. The businesses surveyed strongly believe that the Reserve Bank of Australia will once again raise rates in December… I loved this quote from the Australian Trade Minister, who said, “Despite the Aussie dollar going up, manufacturing has improved, and manufacturers just have to learn to accommodate this sort of thing going forward using hedging.”

That’s right! Tell ’em! Deal with this Aussie dollar strength and quit your whining! I love it!

The Canadian dollar/loonie (CAD) continues to push higher versus the green/peachback (dollar)… This is all commodity related, as the data in Canada continues to be mixed, with the Bank of Canada (BOC) keeping rates in line with the US, thus keeping the loonie from looking attractive. But, that’s OK… With gold inching higher and higher, oil hovering around $80, and other commodities moving higher in price, the loonie can get its lipstick from commodities to look attractive!

Speaking of gold… I saw this quote and thought it hit the nail on the head… “It’s not that gold has changed, but gold buyers have changed,” said Suki Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural shift we’re seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins.”

That’s right! Gold hasn’t changed… It still has to be mined out of the ground, it can’t be made by any alchemist, it has to be mined… And the demand in gold has skyrocketed in the past couple of years, thus pushing people to send in their gold bracelets, necklaces, and rings to cash in the gold price surge… So… One group of people over here is selling any and all gold they can get their hands on, and one group over there is buying it for a rainy day.

Gold’s recent rise has been spectacular to say the least, moving through the $1,000 handle to $1,100 very quickly. I think there are two things in play here… 1. The demand for gold driving the price higher, and 2. The dollar’s weakness. I heard a guy say the other day that “gold hasn’t gained; the dollar has gotten weaker”… What? Nothing about the demand?

We don’t have any “real data” today to speak of in the US but we’ve got a truckload of Fed Heads out on the speaking circuit. Lockhart, Yellen, Rosengren, Tarullo, and Fisher all will be speaking about something today. Even former Fed Chairman, Big Al Greenspan is going to speak today. No telling what he might say! Of course, if the subject comes up regarding the financial meltdown, he’ll say that he had nothing to do with it! HOGWASH! And we all know it! So, it doesn’t matter how many times he tries to absolve himself from any responsibility for the financial meltdown, we all know that at the root of it all… Sits Big Al Greenspan.

And then there was this… The folks over at Barclays say that they have recalculated the dollar’s share of global currency reserves. The dollar, which once stood at 80% of global reserves, and right before the current weak dollar trend began in 2002, it stood at 73% of global reserves, has fallen to 62.8%. But… Says Barclays… This is almost entirely a result of weaker valuation rather than attempts by central banks to diversify holdings away from the dollar. Hmmmm… Now… I do agree that the euro’s gains versus the dollar in the past seven years would cause quite a bit of slippage in the dollar’s value in terms of reserves held by central banks. But “almost entirely”? I doubt it… One could point at the Reserve Bank of India’s purchase of gold last week… They bought $6.7 billion “worth” of gold… You can’t tell me that wasn’t to diversify their reserves!

OK, to recap… The non-dollar currencies are trading in the same clothes as yesterday. The ZEW German Business Confidence slipped this month, although Industrial Output rose. The US is auctioning off $81 billion worth of Treasuries this week, and the demand for gold is really pushing the envelope in terms of gold’s price!

By Chuck Butler

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