Thoughts on Markets

Friday, August 08, 2008

Intervention into Precious Metals & to Prop Up the Failing Dollar


Both silver and gold are being hammered by the bullion banks in concert with the federal government. We are being treated to a great buying opportunity which may continue for a few more days or weeks. This is in concert with the central banks of the world intervening to temporarily prop up the dollar (See the quote, below, by James Turk). Both actions are making the precious metals and mining stocks more attractive than they have been during the last two weeks or so. However, once again, I recommend very cautious buying. But be aware that the fall is the time for the precious metals to move upward in price, as borne out in history.

The physical metals are to be preferred, Everbank's World Markets Metals Select Funds and Gold Money's gold and silver accounts, cautiously then the ETFs and Trust which hold the metals, mining company mutual funds, and finally mining companies, themselves. This is a summary of my plans for precious metals with the highest priority being the physical metals.

Gold and silver are sound means of preserving the purchasing power verses that of the paper currencies of the world. The paper currencies rise and fall in comparison to each other while the precious metals retain sound value long term.

I have noticed that Iran is not receiving a lot of attention lately. Perhaps, Iran is just cooling it to gain more time to develop its nuclear capability. Is the war mentality expanding into other areas now? The following three paragraphs are from Casey's Daily Resource Plus today discussing more military action in the world. You can click on the web sites or paste them into your browser for more details.

"In other news, according to the Kuwaiti newspaper Kuwait Times, "two additional US naval aircraft carriers are heading to the Gulf and the Red Sea. Kuwait began finalizing its 'emergency war plan' on being told the vessels were bound for the region." According to Stratfor, "Georgian troops have taken Tskhinvali, the capital of the breakaway Georgian republic of South Ossetia"...Russian troops are on the move..."and reports are that Tskhinvali is being massively shelled and violent fighting is taking place nearby." And finally, in a Bloomberg story..."Pakistan's President Pervez Musharraf faces the battle of his political life after the civilian government united yesterday on a plan to impeach him -- a fight that may prompt the army he once commanded to show him the door." If Musharraf goes, it's my bet that the 'special relationship' with the US will go with him. But maybe the US will rush in troops to save him!

As if this military conflict in Central Asia (and the potential conflagration in the Middle East) isn't bad enough, there are nation-destroying problems in Western Europe as well. My first story today is about that very thing and involves the country of Belgium. The situation that exists there today is not news to me, as I remember studying this in high school back in the 1960s. However, it may be news to you. The story is from The New York Times and is entitled "With Flemish Nationalism on the rise, Belgium Teeters on the Edge". The link is http://www.nytimes.com/2008/08/04/arts/04abro.html?_r=1&th&emc=th&oref=slogin

To complete today's commentary, my second story also has an international flavour. Ever since the Putin government began reasserting control over its own energy resources, the powers that be in the world (mostly US) have been vilifying Putin at every opportunity. Not that the Russians are lily white, but if you look back at how the US and NATO have treated (and surrounded) Russia since communism collapsed...and then later defaulted on its bonds, you may have some inkling as to why Putin is reacting the way he is. My most vivid memory of Putin is the photo of him holding a gold bar in his hands. He understands perfectly the Achilles' Heel of the western banking and financial system. The story (for which I thank P. Spicer for) is from the International Herald Tribune and bears the headline "Churchill's definition of Russia still rings true"...and the link is http://www.iht.com/articles/2008/08/01/europe/letter.php"


The following from James Turk of www.goldmoney.com on his explanation of the recent strong dollar:

"So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others. So central banks pushed in one direction and funds and traders then stepped on board. In other words, central banks ignited the fuse of a bear market rally.

With this intervention, central banks have bought some time. But alas, they have not fixed the problem. Central bank intervention does not make the dollar "as good as gold", the description that once accurately described the dollar."

We have lost any pretense of free markets. We only have intervention into financial markets on a so wide spread and size scale never before seen. Central banks and governments are deeply involved. The Sovereign Wealth Funds of international governments are having an impact never before seen, too. Thus, it has become very difficult to understand the movement of prices in any market.

There is no doubt that the paper currencies of the world have no backing and are actually notes (IOUs) with out terms of repayment. One of these days, a nation will decide to back their currency with precious metals. That will be the day that this particular nation will have the strongest currency in the world. It can move to center stage in the world, as all will rush to obtain and hold such a backed currency. Gresham's Law: "Bad money drives out good money," will flourish and the backed currency will begin to disappear into hoards. Is this a pipe dream or will it one day be reality?

We can still rejoice in the grace, love, and promises of the Sovereign God of all. We are blessed as we follow His ways in all of life, but are disciplined when we are disobedient. As a good father will discipline his children, our Heavenly Father also disciplines those He loves. In fact, if we receive no discipline from Him when we are disobedient, perhaps we are not really his children. Pray and think on these things.

Best to each, Doug



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