...."The U.S. MUST continue to attract foreign capital. It has no savings. Its people continue to live beyond their immediate means, trusting the stock market to provide. Thus, the U.S. MUST continue to be a magnet for foreign capital. With prospects for capital gains dwindling - see the recent performance of the U.S. stock and bond markets - the prospect for at least a solid rate of return in a SAFE investment must be maintained. That means HIGHER interest rates.
Gold vs The U.S. Dollar
"The final "battle" was always going to be against Gold and Gold's usurper, the U.S. Dollar. If the U.S. can manage to keep all the financial balls currently in the air until the Presidential elections are over, it will be an awesome feat. One cannot rule it out, but we wouldn't want to bet the farm on it."
(Posted on this page on April 28)
Two weeks after that was written, the situation has worsened. The prospect of the re-emergence of another Asian Crisis is looming, with most Asian stock markets (including the Japanese market) showing big year 2000 losses. Europe's stock markets are holding up, though their currencies are not. In the U.S., the immediate prospect of swallowing a 0.50% rate rise must threaten further deterioration in both the stock and bond market.
That leaves the Dollar, and waiting in the wings (where it has been for a LONG time) is Gold. There comes a point where an investment which has been looked upon as "guaranteed safe" for decades loses its reputation. There comes a point where a rate of return, no matter how badly needed, becomes secondary to capital preservation. That point is not yet here. It will be signalled by a turnaround of recent U.S. Dollar strength. We may have seen the first signs of that on May 12.
A 0.50% rate rise on May 16, if it happens, "should" be very positive indeed for Gold. So should any further weakness in the Dollar, especially in the aftermath of such a rate rise. We say "should" for clear and obvious reasons. There is the Dollar, and there is Gold. They cannot co-exist in a monetary role. As long as there is no official link between them, it must be one or the other. We do not know if GATA explained that to the politicians they visited in Washington. We do know that the Gold machinations which GATA is (properly) protesting against are not new. We also know that they are going to be sorely tested in coming weeks."
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