| Some talk of the end of the credit crunch. Some say that the
gold bull market has suffered severe damage, which will affect its
long-term prospects. If we were to accept these statements
then it would appear that the gold 'bull' market is over. But are
these statements acceptable and do they reflect the true picture
underlying the gold [and silver] markets? |
|
To get the
proper perspective let's stand back
and look at the 'BIG'
picture.
|
|
Is the Worst Over?
|
| Credit Crunch |
Not
according to the I.M.F. An assessment by the International Monetary
Fund says potential losses as a result of the credit crisis could
exceed US$1 trillion. The assessment includes warnings that further
losses and write-downs on prime mortgages, commercial real estate,
leveraged loans, and consumer finance were likely. The IMF's Global
Financial Stability report put credit market losses at USD945bn, as
of mid-March, with more losses expected for months to come. |
| The
report also stressed the fact that the credit crisis was impacting
the full spectrum of the financial market in one way or another,
with losses distributed between banks, insurance companies, pension
funds, hedge funds, and other investors. We note that credit card
finance alonside car finance has been included in assets acceptable
to the Fed as collateral, which tells us it is not over by a long shot.
|
|
| U.S. Trade Deficit |
February recorded a Trade deficit of $62.3 billion against a
January deficit of $59.0. This still looks like a $720 billion
deficit to us and with oil prices now at over $120 a barrel and
Chinese imports still cheaper than local products and flooding in,
the prospects are for a worse annual Trade deficit than ever before.
And there is no real sign that this deficit is dropping. |
|
|
|
| Oil Prices |
With
OPEC talking of a potential oil price of
$200 a barrel something has to be done to stop more than
a decline in the $; a stop must be put to the massive global
scramble for resources by a combination of the developed world and
the emerging world, because prices will continue to rise until they
are so high that some will have to do without. This problem is about
the massive rises in demand with far greater ones to come. |
 |
So are there solutions in the pipeline? It seems that the only
solutions available to the authorities are existing market controls
and proposed market controls on all types of markets, but not on a
globally coordinated front. Unless there is global coordination
such control will be completely inadequate. |
Control of the
Markets |
| Little has been published on the proposed actions by the
Treasury department, the Fed and the G-7. But they are actions
that will attempt to place important markets under the control of
monetary authorities of the G-7. They do not, however,
include the interests of the emerging nations on important fronts.
|
The plan of Treasury Secretary Paulson to overhaul the
financial system included a crucial proposal: it would officially
transform the Federal Reserve into a "market stability
regulator." The U.S. Treasury has indicated that the Fed could
use proposed new regulatory powers to stop, "credit and asset
market excesses from reaching the point where they threaten economic
stability." David Nason, assistant secretary for financial
institutions, said the Fed could even use its proposed
"macro-prudential" authority to order banks, hedge funds
and other entities to curtail strategies that put financial
stability at risk. |
Treasury wants to merge the Securities and Exchange
Commission, the US markets watchdog, with the Commodity Futures
Trading Commission that is charged with overseeing the activities of
the nation's futures market. A conceptual model for an
"optimal" regulatory framework focused was being put forward
to achieve three objectives: market stability, safety and soundness with
government backing, and business conduct. |
A working group was being established between Britain
and the United States to sketch out the best way to tackle financial
market turmoil. The British government said that it wants to work
closer with the US and our other major international partners in
dealing with the global financial turbulence. This is a global issue that requires a global response,
it said. While it appears the intentions are noble, they are without
a doubt ways and means to control markets as the Fed deems fit,
inside the USA and the UK. |
"The G-7 group of nations agreed to "calm
markets showing irrational moves". But this message did not
have enough emphasis or was it ignored as a threat? To reinforce the
statement, Jean-Claude Juncker, Luxembourg's premier and the chair
of Europe's finance ministers, announced on April 23 "financial
markets and other actors [had not] correctly and entirely understood the
message of the [recent] G7 meeting." In other words, markets were
put on notice that the world authorities may [will and are?] take
action to halt the collapse of the US$ and undercut commodity
speculation by hedge funds." |
"French Finance Minister Christine Lagarde likened
the recent G-7 stance to the 1985 Plaza Accord when the
industrialized nations agreed to "coordinated
intervention" to drive down the US$. |
"Could this be a joint effort by the States and
Europe to try to impose a tight trading range on the €: $
movements in the future? We think it is as the €: $ exchange
rate moves of the last few weeks have shown [trading between $1.54
and $1.59 against the €]. Much as Central Banks don't want to
'intervene' in foreign exchange markets, it seems that they will do so.
Threats will be ignored until turned into action. |
|
Weekly Gold Bull Market
Updates...
"Now we have food crises; governments in the emerging
world are proposing other market controls. The issue of food
inflation has led some governments to contemplate provocative
strategies to lower food prices. India is reported to be considering a
ban on trading in food futures, a move designed to stifle what the
Indian government regard the speculative influence of hedge funds
and financial market traders in the recent surge in commodities
prices. As food shortages build up food protectionism is starting
in some nations, curtailing exports of food needed internally.
This type of control has to become more widespread as food prices
hurt nation after nation going forward. With food as well as
resource prices running up dramatically action to restrain them will
have to be taken on a national basis, which we do not see being followed
through on an international front.
|
"It seems inevitable that more and more controls
will have to be imposed on more and more markets. It is inevitable
that global movements of capital will have to be retrained at
national levels. The world just cannot afford to have the huge
wealth funds and trade surpluses running through constrained
exchange rates, spreading inflation through higher prices, until local
capital and trade markets demand drastic exchange controls. Attempts
at intervening in foreign exchange markets to contain exchange rates
will attract the switching of huge surpluses into currencies other
than the US$. US-based funds can be controlled for sure, but can
Asian and Middle Eastern ones? History well testifies that it takes
the full impact of a crisis to give good political cause to trigger
draconian measures, such as Capital and Exchange Controls.
|
The Impact on Gold and
Silver Prices |
| While monetary authorities may not be happy to see a
resurgence of global demand for gold and silver, those who are able
to, will see these mounting controls as a threat to the true
measurement of value, which currencies have provided since the last
world war. As the dangers become more apparent, the $: €
exchange rate will not serve as a determinant of the gold and silver
prices, but the falling macro-confidence, fear of more instability,
doubts about the value of global currencies, both 'hard' and 'soft'
and uncertainty on a broad global front, will prompt a broadening of
the type of global investors attracted to these metals to reflect
these fears over time, to ensure that the gold and silver prices
reflect global values and counter those measured against controlled
values [managed currencies] in other markets. |
|
|
|
|
Certainly, the 'bull' market
in gold and silver is far from over. The market is
metamorphosizing into a new phase promising far higher prices than
we even contemplate now.
|
|
What prices will
gold and silver have then?
|
|
|
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