Thoughts on Markets

Tuesday, September 02, 2008

Why is the Dollar Up?


Dollar up and the precious metals are down again. We are waiting for the historical fall rally. When will it materialize? There is still a very large number of futures options out there which are owned by very few of the bullion banks and major players. This tends to keep a cap on the prices. There are a very large number of shorts which represent large amounts of risks to rising prices and are more comfortable as long as prices remain low. This has a major impact on precious metals.

India is going into the major time of purchasing gold. Sales there are quite high, particularly, with the lower prices. The extra premiums do not seem to be any deterrent to the Indian buyers. They are still flocking to the market for physical gold.
The mining stocks are taking more hits. I would suggest you hold off buying and continue to hold until the situation changes. Almost all of our mining stocks are in nice buying range, but I am not buying until we see the eventual direction of the prices as the fall moves forward.

The following is from Casey's Daily Resource Plus:
Analyst Dan Norcini, writing on jsmineset.com, thinks so. “Foreign Central Banks are behind the rally in US Treasuries,” he writes, “and as a consequence, the rally in the US Dollar. How much longer they remain willing to ply this gambit is unclear but one is not at all murky, someone is going to get stuck holding the bag.”

The news is that the dollars bulls have bid the dollar upward again extending the move from August. Our questions are two fold: (1) Is this simply more of the foreign central banks move to push the dollar?, or (2) Is this the result of the perception, possibly true, of investors that as bad off as our economy is, others may be worse? To tell the truth, I do not know, but the markets will reveal the answer and, likely, quite soon.

China does not seem to have as much trouble as some would have us believe. They are still searching for commodity companies around the world for purchase. Recall that they are using their Sovereign Wealth Fund for this purpose. This relatively new player in the international arena continues to move forward. Perhaps, we are witnessing a change from Western to Eastern dominance in international markets in which direction Russia is also moving. Times are always interesting and this is a great one in which to be alive.

Long term, I believe the paper currencies will fall in relation to precious metals. When is the one aspect of which we can, at best, have only educated guesses. However, we know the One True God has this under His control. Therefore, it is incumbent upon us to rest in this knowledge and to know that He is working all things together for the long term good of His people. We know that ultimately we, as children of King Jesus will rejoice forever in His presence. That is the sure hope that He offers. What a lasting joy that provides in times of challenges and struggles He brings upon us for our growth in Him.

Best to each, Doug

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