Russell on the US$ and gold
gold-eagle.com
The global situation is very deflationary. There's too much debt -- and too much global production at viciously competitive prices.
Any time the Fed eases up on its inflationary operations, deflation begins to take over. We can see it most clearly in the action of gold. The fact is that the Fed is actually not inflating enough -- and that's exactly what the action of gold is telling us.
Next, why the strength in the dollar, when everyone is saying that the dollar should be heading down (including, I might add, Warren Buffett)?
I've said this before, and I'll repeat it -- the HUGE debt position in all areas in the US economy amounts to a "synthetic" short position against the dollar. The dollar's strength is telling us that. Contrary to what everybody seems to believe, there is not enough liquidity in the system. Any time the Fed eases up on the money supply or any time the Fed does not create enough liquidity, the dollar surges (as it's doing today) and gold drops.
...and...
Your biggest position should be in US dollars now, with gold basically owned for insurance purposes. In the end, if we do get "out-of-control" deflation the very validity of the dollar and all paper money may come into question, at which point gold would be the only place to be.
But right now, judging (my judgment, of course) the main place to be is in US dollars. If we get deflation, rates will ultimately go down and T-bonds will be the place to be, but the timing of that kind of action is very difficult -- particularly since the "carry trade" is just beginning to unwind. Everybody was doing it big time -- but now with long rates rising the carry trade is starting to produce losses. |
