Gold Will Keep Rising As Long As Central Banks Keep Printing Money Gold reaches an all-time high and the Aussie dollar reaches 99.94 US cents. That's the same as Don Bradman's batting average, according to today's The Age. Unfortunately, that's about as good as the mainstream analysis gets when it comes to the Aussie dollar. And you can completely forget any kind of analysis on gold from the mainstream.They're still trying to figure out what the big deal is. Of course, as usual, their problem is they're looking in the wrong place for the answer. Rather than trying to understand what gold is, what they really need to study is what money is.As soon as they figure that out, then – and only then – will the gold penny drop. How do I know? Because that's exactly how we figured it out, after being a gold ignoramus for more years than we care to admit! So, can gold and the Aussie dollar go higher? Well, we're not sure about the Aussie, but as for gold we'll echo the sentiment of Thomas Bachheimer, CEO of Meridian Commodity Advisors when he was asked by CNBC yesterday whether the oil price could go higher. However, it's not all plain sailing.Not when you consider the reason for the strong dollar. And certainly don't be fooled by the nonsense you'll hear from Treasurer Wayne Swan.He told reporters after his meeting with US Treasurer Tim Geithner this week: I think the value of the currency tends to reflect the underlying strength of the Australian economy and the view that international investors have of the Australian economy despite all of the international uncertainty that we experienced. Ha, ha, ha... [Continues ad nauseam.] We think he's serious too. The clown. Let's get one thing straight, the strong Aussie dollar doesn't have anything to do with the so-called strong Australian economy. Think about it, if investors really were betting on the Aussie because of the economy, what are they betting on? The resources sector, that's it. Add in a bit of agricultural exports and that's pretty much your lot. Most of the rest of the Australian economy is consumer-led. A consumer-led economy financed by easy money and foreign speculation. That's all. Nothing else For investors from overseas they're treating Australia like a... [I know we may sometimes overuse this word, but what the heck] giant Ponzi scheme. Piling in to take a whacking great punt on the Australian resources sector, and hoping they can get out quickly before everyone else. It's called the carry trade, For some reason, most mainstream commentators and analysts seem to be ignoring this fact, Preferring instead to act as cheerleaders hoping the Aussie dollar will rise further on the back of a so-called strong Australian economy. But David Rogers at The Australian at least picked up a quote from an unnamed Goldman Sachs trader: "The carry trade is now consensus – everyone thinks it's a real no-brainer – short the US dollar, long assets, commodities and equities" Unless we're mistaken, there's nothing in there about being "long the strong Australian economy" . Traders and investors are buying the Aussie dollar for three reasons. And these are the real reasons: the higher interest rate, commodities, and a higher perceived risk. And all of those make for a great punt for traders looking to profit from the carry trade. These are traders who wouldn't know Australia if you flashed a koala before them. They see numbers. They see a place called Australia – which half of them probably think is Austria – and they see a higher interest rate than in the US, and they see that Australia (or is it Austria) has a bunch of copper and iron ore and gold. What do they do? They take a punt and buy the living daylights out of it. But that's all it is, a punt It's not an investment for the long term. Look, make no mistake about it, the global economy is approaching breaking point. And it's all thanks to the money printing financial terrorism being carried out by the US Federal Reserve. It's that policy which is driving the carry trade. Encouraging investors in the US and elsewhere to abandon the low yielding US dollar and seek higher yielding and higher risk investments. Australia is in the front line of that investment flow. As Mr. Bachheimer points out: "This is mainly due to the money supply. We produce a tremendous amount of US dollars, oil is quoted in US dollars. Of course the intrinsic worth of one US dollar compared to commodities is shrinking and that's the reason why the oil price has to come up and it's lacking a little bit and I think there is much more to come in the next couple of years" And that's exactly the same reason why the gold price is increasing. And I'd say the gold price is "lacking a little bit" too. The devaluation of paper money is causing the gold price surge. And the way things are looking at the moment in the US, the devaluation of the US dollar is set to continue. Does that mean the Australian dollar will continue to rise? All else being equal, then yes it could. But that's just theory. In real life all else is never equal. Things change. Human behaviour and attitudes to risk change. And it's for that reason why it's dangerous to assume that the Aussie dollar will keep rising and that Australian equities will continue to benefit from central bank money printing. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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