(new article) The Gold Volcano: 15 Roads Merge Golden Lava
321gold.com
by Jim Willie CB
February 15, 2003
The following large pools of capital will each be diverted into the precious metals asset groups. The promise of greater returns will be strengthened by economic conditions, monetary stress, desperate reactive government policy, and international chaos. A volcano will build, with the USDollar providing the power. Each major road will feed large amounts of money into the gold market. Some up-to-date background precedes discussion of each supplying road. Motives will be covered for each source to seek out gold. Many are the roads. Many are the motives. Together they will build a volcano under gold, merging the roads and lifting its price with awesome power.
SOURCES OF MONEY FLOWING INTO GOLD & SILVER:
- US Treasury debt securities
- Chinese and Russian Central Banks
- Arab Petro-Dollars
- Gold Miners
- Federal Reserve Monetization
- EuroBonds
- Japanese Savings
- Pension Funds (managed and unmanaged)
- Hedge Funds
- Real Estate
- Mortgage-Backed Securities
- Corporate Bonds
- S&P Stocks
- New United States Gold-backed Dollar
- New Argentina Silver-backed Peso
Since December of 2002, gold has broken out, making major headlines around the world. The gold market has seen a significant breakout above the $330 price, even as silver appears poised to break above the $4.90 resistance level any week now. Numerous powerful factors are all at work, all pushing the gold price up from far ranging disparate and global sources, collectively impossible to control. These factors are detailed at length in my November article (see ref#1). Since that time the sources have become more clearly defined, while the actual forces have become more intense. As time lapses, the market dynamics are fast emerging with deep clarity whereby very large money flow sources are being directed toward gold. The roads are being paved with more official sanction, if not respectability, even as they widen. Although many experts and pundits proclaim with strained resignation that the new gold rush owes its roots to the declining USDollar, they often fail to explain the reasons behind the dollar decline itself, or offer few explanations. A dollar crisis is building, since no protection feedback mechanisms exist or operate at this moment. The overvalued dollar is correcting in value, even as its supply is accelerating. The monetary mechanism is being impeded by Fed intervention (prevent rising longterm rates) and the industrial mechanism has long been absent (offshore mfg in Asia and Mexico). No defense stands to protect the dollar, whose declines will set off a vicious circle. In the past few weeks, pathetically shallow and self-serving reasoning by the press & media attributes gold's rise to the Iraqi tension. How expedient! In my kept book, Saddam Hussein and Iraq rank somewhere around 6th or 7th on a long list of market forces behind gold. If the Iraqi conflict is resolved, sure, we might see a sudden $15-25 drop in the price of gold. But that drop will be overcome in the following weeks, then long forgotten. The pundits will be left scratching their heads. Over the next 18 months, I expect them to scratch their heads numerous times. Eventually they will watch gold in awe.
A burgeoning trade gap, a dangerously escalating federal deficit, and pre-empted negative real interest rates are of greater importance, easily eclipsing the more public spectacle of Middle East tensions. This much goes without question to any serious student of gold and the dollar. As Stephen Roach points out, the US current account deficit was $40B in the month of November. We are on pace with a trade gap approaching 6% of the US GDP. Now the service sector is experiencing rising imports, a new development. Bulging deficits of this magnitude should next lead directly to big concessions in USTBond, US equity, and USDollar valuations. Certainly an immediate lack of confidence in American leadership within international circles has chipped away at the dollar. Worse still, isolation of the United States could jeopardize the required capital flows that keep our economy operating (in the red) at almost $3B per day. Shallow attribution of dollar woes to Iraqi tensions is akin to observing a man suffering from acromegaly, and calling him ugly since he has recently begun to show evidence of acne. (The condition is based upon excessive secretion of human growth hormone, see Frankenstein Effect or The Hulk). The US economy has been the object of decades of excessive secretion and absorption of financial growth hormones, and now suffers from severe imbalances and distortions, a grotesque form of "financial acromegaly."
.... and more
/ jim |
