Gold Forecaster
- Global Watch
Gold to de-couple from
the €
Julian D.W.
Phillips
Gold Forecaster snippet
Feb 4, 2008
All markets, in their search
for a reliable formula that satisfies the scientific and mathematical
belief that market relationships are precisely measurable in
something else, believe that gold is responding in an opposite
way to the $. The corollary to that is, therefore it must be
moving in synch with the €? In fact, in the € it
has been rising. It is important to look a little more closely
at this formula and the realities behind it.
The Eurozone is relatively
self-sufficient as we see by the actions of the European Central
Bank officials, acting against inflation rather than tending
to growth, unlike officials at the Fed in the States. But are
they? Would Europe be able to stave off a recession if the States
were suffering from one? More to the point, would they be able
to retain growth if the $ fell against the €? A really
strong € would savage European competitiveness over time,
so Europe cannot afford to see the € too strong and remain
healthy. The cheapening U.S. competition, gaining ground as the
$ fell would eat into European exports and force Europe to begin
to fragment economically or to retaliate.
This week has seen the $ head
down again as the interest rate benefits of the $ proved less
attractive than those of the €. But then we saw the $ suddenly
recover way beyond a level justified by the fundamentals on the
$. Clearly global entities that wanted to see the $ hold value
and its exchange rate level moved into the market and drove it
back up, despite the trend to sap the $. But then, after the
Fed drop the Fed Funds rate another 0.5% the $ sank another 1+%.
If theory were dominant, the
European economy is set to turn down and follow the States into
recession on the back of a strong €, but we don't believe
for a moment that Europe is going to sit idly by and watch this
happen. The first point of retaliation has to be to weaken the
€. The second is to stimulate growth and place "price
stability" on the back burner. The resulting lifting of
inflation, will be a price they have to pay, but if 'price stability'
leads to falling growth and a recession in Euroland, then expect
to see the € de-couple from the $ and an exchange rate
battle ensuing, bringing into play market forces that even George
Soros, the great Pound Sterling speculator, never dreamed of.
The trend of the last year in particular has been for Central
Bankers to move to the view that international trade competitiveness
is first prize in the exchange rate markets. Only in the major
three trading blocs in the world has the view been any different,
but for how much longer?
Can Europe benefit from the stimuli the Fed and Bush are pumping
into the U.S. economy? Yes, provided they are not disqualified
by a strong €. So expect the € to de-couple from
gold soon. After all it remains a currency whose value is presided
over by men. It remains simply an obligation of these men, dependent
only on the confidence that they can inspire in the monetary
world. When its qualities are viewed against those of gold, then
one wonders just how could markets relate the two together.
Now look beyond the time that
the € and the $ move against each other, whether in some
sort of unholy alliance [between the two Central Banks] to maintain
a 'trading band' within which to move. On the side of this the
rest of the currency world will search for some stability in
exchange rates with their main trading partners [each currency
in its own place in the currency pecking order] resulting in
them moving, roughly, all together in a seemingly 'stable' market.
The buying power of each one will drop as far as internal and
imported inflation drops them. This is the direction global currencies
are headed in already.
Will this type of exchange
rate stability, including between the € and the $ bring
back confidence? Not in the slightest. It will give no more comfort
than one lemming has, following the next over the cliff.
But gold, true to its inherent
nature, alongside silver will reflect the subsequent rapidly
rising global inflation, this time in an atmosphere of superficial
comfort, like the man who fell off the fifty-story building.
As he passed the twelfth floor, he was heard to say, "So
far, so good!"
The € will de-couple
from gold because it is a currency and it is reliant on the global
economy to the extent that its Balance of Payments is critical
to its good health. It is also printable, as we have witnessed
this last six months. It is only a matter of time before the
market sees that and takes gold up and away from it.
| "The
€ will de-couple from gold, because it is a currency!" |
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Feb 1, 2008
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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