Falling dollar and rising gold, and global warming

The US Dollar has been on a persistent downtrend this year and is fast approaching the 2008 lows. I was going to post of chart of the Dollar Index. You can probably get a better picture by standing on your roof, taking all the currency out of your wallet, and tossing it into the air and watching gravity pull the bills down to the Earth.

There seems to be little support other than perhaps a possible bounce off the 2008 lows. A rise in interest rates would likely cause a lift, but that rise doesn’t seem to be imminent, at least by listening to Bernanke. The destruction of our currency, as well as the destruction of many other aspects of our lives, seems to be part of the agenda of this administration, so a change of course seems unlikely. Politicians and treasury officials will always say how a strong dollar is in the best interest of the country, and then enact policies that are a hundred and eighty degrees from what they say publicly. This was true under the latter part of the Bush administration and is true to an even larger degree by the current administration.

The falling dollar has resulted in gold climbing to an all time high, at least as viewed in terms of US Dollars. But is this a demand driven bull market in gold or is the price rise simply the result of gold being priced in a falling US Dollar? I see or hear ads on the TV or radio about every ten minutes urging us to all buy physical gold. We hear that it has doubled and tripled and that it will surely double and triple again in the near future. I heard an ad today that said the way to become a millionaire is to buy one ounce of gold now and then sell it when it reaches a million dollars an ounce. I’m not kidding. It was on the radio today in the Seattle area by a local gold dealer. I’m sure he wasn’t completely serious. He was probably just trying to get the listeners attention. I have been a gold bug and trader for many years, and I cannot recall any time in the past when there have been so many ads hawking gold investments as there are now. Can they possibly be right. After all the dollar is falling, the government seems clueless and is spending our way into oblivion. Inflation seems like a sure bet.

There is a problem with what seems so obvious. On the surface it seems that the reckless spending the government is already doing and the prospect of much more down the road will continue to lower the value of the dollar in relation to other currencies, that is if the countries of the other currencies are more responsible with their monetary policy. That seems likely as it would be difficult to be more irresponsible than the current crop in Washington. But forecasting gold prices based on this inevitability does have a flaw. Despite what the gold dealers will claim, gold needs inflation to have a sustained, demand driven bull market. Gold can have momentary blips due to uncertainty or sudden events. Gold can have nice trends when the currency it is priced in is trending downward. But without inflation it would be difficult for gold to continue an uptrend into the stratosphere. It is true that much of the uptrend in gold over the last few years has been demand driven as it has appreciated against most major currencies. However this last impulse that is getting so much attention as gold has moved to new high ground is only doing so in relation to the US dollar. If you price gold in other currencies it is not making a new high. So the current impulse is moving inverse to the dollar.

But isn’t inflation inevitable with the destruction of the dollar? It is possible that inflation will be the result of the reckless monetary policy, but it is far from inevitable. If we enter a period of deflation, then increasing the money supply, even at a fast pace, would be like pushing on a string. I don’t think money or credit creation can get ahead of falling prices once price begin to fall. In many areas prices are already falling, such as in real estate. Real estate is important because it is a store of value for many people, unlike other things people buy that are disposable. If unemployment stays high, like the government even forecasts it will, and people can’t buy as many things, then where will the demand come from to push prices of anything higher? It can’t and won’t. Certainly this down cycle shouldn’t last forever, and monetizing the debt will likely create inflation eventually. But eventually can be a very long time. As far as gold for an investment, there has to be a reasonable time to expect inflation to occur. The pieces to the timing puzzle don’t seem to be in place yet. If deflation takes hold that trend could be in place for a long time. It might be that if one wanted to trade the continuation of the dollar decline a better place to bet might be other currencies. If gold is only moving as an inverse trade to the dollar, gold could disappoint if other fundamentals create a trend apart from the inverse relationship to the dollar. If deflation takes hold that could very well undo the gold price in relation to all currencies, and at the same time the dollar could continue lower. Of course employment could improve, demand for goods could return, inflation could pick up as the debt is monetized, and gold could double or triple from here just as the ads promise. All I’m saying is that it is not a sure thing.

Now on to global warming. There is an interesting video by Lord Christopher Monckton recorded on October 14th at a presentation in St. Paul. Please view this video. CLICK HERE FOR LINK It is only 4 minutes long, and well worth viewing. I know many on the left say that Lord Monckton is a hack and being paid off by the oil companies. It seems common practice for those on the left to destroy the character of a person if they say anything in opposition to left wing talking points, rather than debate the issues. This practice was perfected into an art form by Bill Clinton during the Monica ordeal. He tried to destroy the character of every single one of those women that he didn’t have sex with, of course depending on what the meaning of “is” is.

But let’s just assume for the moment that the left is correct and that Lord Monckton is being paid by oil companies. Would it be wrong for oil companies, or anyone else, to have a voice out there in opposition to Al Gore. Mr. Gore won’t debate the issues. He will cut off the microphone to anyone asking difficult questions. He says the science is settled even though many scientist disagree. Al Gore has profited over one hundred million dollars SO FAR by this global warming scare. He’s being paid very well. But any opposition to his views are demonized. If they make money from speaking fees it is wrong, but if Al Gore makes a hundred million, well, that’s just fine and dandy.

Just for the sake of argument, let’s assume further that Al Gore is correct and that we do have global warming. Then how possibly would destroying the economy in the United States by putting all the environmental controls in place possible have any effect on the temperatures of the planet? All industry would be forced out of the country. No business could survive the restrictions that would be put in place by the legislation proposed by this government under cap and trade/tax. Factories would relocate to countries such as China that have no interest in saving the planet. In fact, if factories were to relocate to areas with no environmental controls, the planet would have less clean air, and if man made global warming is possible, then the warming would worsen.

So is there another agenda? I think so. Obama himself has hinted in his America bashing speeches around the world that the US shouldn’t be so big and powerful. If they can continue to destroy the economy it will be much easier to create a socialist society here. At the same time they apparently want to reduce the influence of the US to the rest of the world. Reducing our economic power will be a major step in that direction. If this view turns out to be correct it will have a major impact on the future course of stock prices. Stock and commodity markets will be of much less value in the type of society that seems to be the real vision of Obama. Mmm….mmm….mmmmm…..

I received an email this morning from an advertiser on this site discussing the Nasdaq. This was recorded as of the close yesterday, forecasting some downside, or at least more two sided action. It’s a short video worth watching. Here’s link.

One thought on “Falling dollar and rising gold, and global warming

  1. Out of all the trading, econonmic or stock market blogs I have read this is my favourite; it is a real breath of fresh air. Your grasp on topics both technical and economics is excellent and is put in a way that a relative laymen like myself can understand. I do have one major complaint about your blog, which is that you dont post nearly enough. Less holidays and more writing please.


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