i'm sorry - apparently gold is not glittering

i wrote about how gold is the future world currency. and all signs still point that direction. but it turns out, the market punishes gold. so just as i tell you when i make good calls, i'm obliged to tell you when i've made bad calls.

obviously following the day to day vicissitudes of the stock market or a single commodity is basically a waste a time. i continue to believe that over a long haul, gold is a lot safer bet than the dollar. that being said, gold is down to under $870 / oz (from over $900 when i recommended it - though it did rise to over $950 shortly after my call). right now i would consider the gold trade to be the maximum pain trade. lots of fund managers are panicking out of the trade putting short term pressure on gold. as long as this market rally continues, gold will continue to be pressured. but at some point, maybe in 6 months, maybe in 3 years, putting your cash into hard assets, like gold, will look like a very good decision.

post updatez

the day after i posted the end of newspapers, the chicago sun times media group (the tribune already filed) filed for bankruptcy. it also seems that today NY city is contemplating shutting down a number of post offices around the city.

further, i wrote about the coming gold standard a couple of weeks ago and today russia called for a partial return.

ron paul gets it

rather than explain what i think about this mini rally, i'd rather let this article on ron paul do the talking.

Believer in small government predicts 15-year depression

Here is a brief example of what ron paul thinks, "At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s."

basically, he is indicating that we are finally paying for the move off the gold standard and the nixon shock.

it's going to get really, really awful.

gold standard coming

there will be a major currency backed by gold in the coming years. free floating currency is only good for the standard bearer currency. currently, that currency is the US dollar. but while the fed buys treasuries by turning on the printing press, the international buyers of treasuries are not happy.

china is even beginning to discuss an alternate to the US dollar. if that happens, say hello to massive inflation! if countries stop buying US treasuries, our country is in trouble.

i think the most likely suspect for creating a gold backed currency is russia. russia is flush with natural resources. if they started demanding that they get paid in gold only for their oil and natural gas, things would change in a hurry.
it's not long before saudi arabia and other countries with hard assets begin asking for a hard asset back rather than funny money from the united states.

when nixon closed the gold window in august 1971, making the dollar no longer convertible into gold, he may have staved off bankrupting the US. we convinced the whole world that our funny money was worth something. but i think the world is wising up on us.

told you so

in what i hope to be a series of told you so moments, yesterday i wrote that the US would devalue its currency. today the fed announced it would buy up US treasuries, effectively devaluing in the US dollar (i thought it would take longer but Obama and team are fast!)

Dollar Falls Most Since 2000 on Fed’s Plan to Buy Treasuries

on this news, the price of gold spiked $50. so had you taken my advice to buy gold yesterday, you'd be 4% richer today.

switzerland first - us next to devalue currency?

with US foreign debt exploding - China holds over $740 billion in US treasuries and Japan over $630 billion - the US government will have a tough time paying back all these loans.

this explains why US CDS rates are currently higher than Campbell Soup's.

but a strange thing happened in the CDS market this week. european sovereign cds plummeted. specifically, cds on switzerland. certainly the updraft in the global markets helps explain this, but, switzerland cds went from 260 bps to 180 bps basically overnight. the major reason for this price drop was that switzerland decided to purposely devalue their currency.

funds that had been making money off the rise in expectations for default by european countries got destroyed. it's tough to bet against a country that has a printing press for their cash.

devaluation will clearly result in inflation in switzerland. but it helps them more easily pay off their debts.

Russia seems to devalue the ruble on a semi regular basis. perhaps they are doing this to allow for a soft landing in order to prevent what happened in 1998 when the ruble lost 71% of its value overnight.

with the US foreign debt piling up and demand for treasuries waning, it is not hard to imagine a day when a US president gets on national tv and announces that your dollar has a fraction of the buying power it had earlier that day. the specter of inflation is looming. perhaps it will take a year or two to kick in, but all the money we are paying for bailouts has to come from somewhere.

the nixon shock - where the US unilaterally obliterated breton woods - probably enabled us to finance the winning of the cold war. but floating currencies create a lot of uncertainty - more on the nixon shock to come. in the meantime, think about investing in hard assets - like gold, barrels of oil, real estate and non perishable food.