Discussion with Heinz about gold rallying in all currencies
Mish:
Check out a chart of gold in euros or OZ$. Not much there at all. As long as the US$ keeps sailing south, gold is probably not going to do much against a basket of currencies outside the US. If the US$ rallies NOW, I bet gold tanks.
Yes there could be some external event that changes that, a panic of some kind, Bush has a heart attack or the Saudi govt collapses or something like that, but right now the fortunes of gold seem to be tied to the US$.
There are a couple possible scenarios.
Slow and painful as every country tries to trash their currencies to gain competitive advantage. This is the slow motion dive to 0% rates worldwide as nation after nation falls in the "Japan Trap". In this scenario, when the US$ bottoms and we see what a sham the Euro is, the Yen is, and the pound is, that is when gold does its march against all currencies. This could take quiet some time to play out if no one panics. Best guess for this scenario to play out is about 3 years minimum. Perhaps we even see the markets breathe a big sigh of releaf at that point, currencies stabilize and the US$ has some kind of big false rally, taking gold major league south with it.
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I sent that piece to Heinz for comment and received this short reply:
i agree...it'll be a while until gold rallies in other currencies too. and one needs to keep in mind, when that happened in the late 70's, it was actually the final blow-off.
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Mish: If and when we get there and it does start a massive rally in all currencies, it will be time to be thinking of how best to profit by it, not selling too early, but most of all thinking about when and how and what signals to use to exit. More than likely gold will be the talk of the town and go from page 16 news to page 1 news. Perhaps that will be what to watch for. Right now it still seems like a US$ thing.
Mish |
