- The markets don't seem to like waiting for Colin Powell's
appearance before the U.N. Security Council later today.
Stocks and the dollar sank yesterday, while bonds
rebounded. The Dow fell 96 points to 8,013; the Nasdaq lost
18 points to 1,306. War jitters pumped up oil prices almost
$1.
- But there seems to be only one word on the lips of
investors these days...and I believe Klondike said it best:
"GOOOLLLD!!!" New highs, record volumes...gold's in the
news around the world.
"There's nothing traders like to see more," says veteran
FOREX trader and the Daily Reckoning's man-on-the-scene
here in London, Sean Corrigan, "than the new lot of buyers
and sellers that accompany the move to a new price range.
In gold's case - where that range is being extended to a
new 11-year high and exchange-traded volume records are
being set - you couldn't find a better signal."
This is exactly what is happening in Japan, where the
surging price of gold in terms of yen is doing all of the
above, attracting frantic interest in the metal - which
does, after all, yield more than the home-grown paper
money. Reuters reported panic buying, but also
opportunistic selling, though the latter shouldn't be taken
as a bad sign - better to get the selling over in a rising,
rather than a falling market.
The most-active December gold contract was up 28 yen in
mid-afternoon yesterday at 1,489 yen per gram, a level not
seen since August 1992, before it eased back to Y1469 at
the close. Turnover hit unprecedented volumes, with trade
in the December contract alone topping 397,714 lots (400
tons), and all six contracts reaching a massive 525-ton
equivalent.
Osamu Ikeda, general manager of precious metals at Japan's
biggest bullion house, Tanaka Kikinzoku Kogyo K.K., told
Reuters that ordinary Japanese were turning up in droves to
buy gold bars and coins. Even so, Ikeda warned that there
were sellers among people who bought back in 1999 - when
gold prices hit a low of 917 yen per gram - who were now
taking advantage of the high price.
Kikinzoku reported that its bullion sales for investment
purposes soared 54% in calendar 2002, as investors funneled
money to gold from stocks and other assets.
"Many individuals have recently come to us to purchase gold
in chunks of 2 or 3 kilograms," a dealer from the company
told the Kyodo News. "It appears that gold possession is
regarded as a good method for preserving the security of
one's assets from a long-term standpoint, as people have
come to develop anxieties about the course of Japanese
society."
In Australia - where gold has hit a 15-year high in terms
of the local dollar - it seems a veritable gold rush is
underway. Reuters reports that "gold prospectors eager to
peg new ground made a run on heavy mining equipment."
"This morning, we tried to hire a diamond-tipped drill, but
were told there was none available," said Ron Manners,
chairman of Croesus Mining NL, Australia's third-biggest
gold producer. "Such a thing was unheard of until now."
Hmm...we're guessing they'll be hearing it more and more in
the coming months...
-------------
Meanwhile...back in London...
*** China and Russia are buying gold, too. Put yourself in
the shoes of one of these export-driven foreign countries.
They send goods to the U.S. and get paid in dollars. The
U.S. doesn't seem to produce much that they want...so what
do they do with the dollars? They used to buy U.S.
assets...but with the dollar falling and Wall Street taking
a beating...they have to think twice.
Gold, meanwhile, is streaking up so dramatically that even
the financial press has noticed. Wouldn't you be tempted to
replace a little of your dollar reserves with real money?
Gradually...or suddenly...the extra dollars of cash and
credit squeezed into the system by the Fed, Fannie, and
other financial intermediaries lose their appeal. Who wants
them? Who can borrow...and pay back? The system has become
destabilized...and must collapse. But how? Will it implode
- like Japan? Or explode - like Argentina?
*** "I guess they wanted people to take them more
seriously." Elizabeth was trying to explain the shift in
the economics profession from the 'moral philosophers' of
the 18th century to the econometricians of the 20th.
The question at hand was: why hadn't economists noticed the
destabilizing effects of Greenspan's policies?
"Because they forgot what business they are in," was your
editor's response. "They so admired physicists and other
hard scientists that they began to imagine that economics
was a hard science too. Like astro-physicists, they thought
they could come up with quarks, anti-matter, and black
holes...they thought they could come up with ideas that
were unbelievable...counter-intuitive...fantastic.
"In the hard sciences, you can heat water, for example, and
every time it reaches 212 degrees Fahrenheit it will boil,
other things being equal. Neither steel, water, nor dice
have any memory or any feelings...they do what they do
every time.
"But economics is not a hard science at all. It's a human
science. And humans react differently depending on their
experiences, expectations and so forth. If they think they
can get rich buying stocks...they rush into the stock
market, and bid up prices to the point where there is no
way they can get rich. A company only produces so much
profit. If you pay too much for it, you don't get rich, you
get poor.
"Plus, humans are not machines; they're not mechanical.
They do wild and crazy things...make fools of themselves
from time to time...that is what makes them so much more
amusing than steel or silly putty...
"And when you put them in a group, it is even worse...they
seem to go mad regularly...and only come to their senses
after they've nearly destroyed themselves..."
Well, most humans are that way...not Daily Reckoning
readers, of course. |
