Thoughts on Markets

Monday, April 14, 2008

G-7 Said Nothing, So the dollar is Up!



The graphs tell us that the summer doldrums are upon us in the precious metals. We have to keep reminding ourselves that gold is a political metal. The cartel plays pricing games with it using options on the metal. They play the dollar, as well. The value of the dollar in relation to other currencies has an impact on the price of gold and the other precious metals. It seems that, barring any expansion of the war or disruption of oil supplies, the metals will establish a trading range for next 3 to 5 months and are likely to break upward in the fall if the pattern holds true to form.

Gold has moved to 925.9 and silver is at 17.68. The mining stocks are holding fairly well after the drop of gold from $1000 several weeks ago. DROOY is down to 8.92 which I thought we would not see. You should note the article I sent earlier today on DROOY (DRD Gold). I still believe this is a sound company. It has been adversely impacted by the shortagbue of electrical power in South Aftica. It will take some time for the infrastructure to be expanded, but we would hope that it will be done as quickly as possible. In the meantime, the supply to the mines will be lower than desired.

Well, folks, there seems to be a lot of rejoicing over the "good news" from the G-7 meeting. However, there was a lack of any positive plans or encouraging official news from the meeting. I guess the total optimists just listened through rose colored ears, so the dollar has rebounded a bit since.

The fundamentals that are a curse on the dollar remain firmly fixed. We still are engaged in a war that becomes more costly in lives which we Americans value highly and dollars which we do not have. Our balance of trade remains unbalanced since we have by taxes, regulation, and unions run our manufacturing out of county. We have astronomical levels of debt at all levels of government, as well as, for businesses and individuals. As a result, consumer confidence is down as is consumer spending.

The real black cloud over the dollar is the fact that we are supported by other governments, central banks, and foreign citizens buying our debt instruments. They are lending to us in great quantities. However, the purchase of our debt has slacked off some this year. Were this to stop or drop a great deal more, our bankruptcy would become apparent. Tied together with this is the fact that the dollar remains the reserve currency of the world. Should the buying of our debt dry up, there would be a mushrooming tendency for central banks to dump dollars and replace them with another currency. That would end the dollar's reserve status on significantly lower our economy and our standard of living.

On the consumer spending, have you noticed the prices at the grocery stores recently? Wow! It appears to me that the level of price inflation is in the 8-10% range, regardless, of what the government tells us. Have you noticed the downsizing of packaged grocery items? I noticed the other day that the quart jar of mayonnaise was no longer a quart, but 30 ounces. That is another tactic of manufactures to keep from raising the price of the product. You should recognize that the price has actually increased by lowering the amount in the similar container. How about the cost of filling the tanks of the gas guzzlers? Yes, there is price inflation which is resulting from the ever growing flood of credit and actual dollars into the economy.

The Privateer reported that Europe is pulling away from the U. S. control of NATO to form one of their own. Soon the pressure is likely to be upon America to withdraw our troops from Europe. Troops would, also, be withdrawn from some of the 150 places throughout the world. I have been mulling over in my mind of the impact of this here at home. First, this would be a welcomed opportunity for reducing the cost of occupation of so many countries, so the federal spending could drop. With all of our troops here at home, there would be a reduction in force putting many folks out into the civilian economy searching for jobs. Thus, there would be an increase in unemployment which has been been edging upward this year. So, we are facing a potential double edged sword: lowered cost, but higher unemployment.

Who said that this is not an exciting time to be alive? Our Sovereign God never said that our lives would be always a beautiful rose garden. However, He did promise to be with us forever and that is a real blessing upon which we can depend. He is working out His will in America and in every life according to His plan. Remember that nothing can separate us from His loving care. He will preserve His people to ever live with Him in the mansions He has gone to prepare for each of us. What a wonderful Lord and Savior: Jesus Christ.

Best to each, Doug

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