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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers

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To: Claude Cormier who wrote (25415)	11/16/2006 9:39:01 AM
From: Rarebird	Read Replies (1) of 78409

>>As for the USD, in the long term it will collapse. But it could well be that a major rally lies just ahead.<< What catalyst do you see that would make the USD embark on a "major rally just ahead?" The bond market has been assuming a recession is in the cards next year and that the Federal Reserve would realize this. But, the minutes of the last meeting show the FOMC is clueless: federalreserve.gov If the Fed is going to raise short term rates, it is going to pressure long term rates. The other thing that will pressure bonds lower (rates higher) is the imminent move by the biggest holder of US Bonds, the Peoples' Republic of China, who are making noises about "diversifying" some of their $1 Trillion of holdings in bonds denominated in US Dollars into other currencies. If the Chinese stop putting so much of their surplus funds into buying US Government debt, they wouldn't have to actually sell any of their existing inventory to cause bond prices to fall. One other factor is the "desire" on the part of the newly-empowered Democrats to devalue the US Dollar against the Chinese currency. By deferring purchase of US securities, the Chinese will be putting downward pressure on the US Dollar. As far as I can tell, driving the price of US bonds lower is in the best interest of China because it would eliminate the Democrats' desire to impose a potentially disastrous tariff on Chinese exports in retaliation for keeping the US Dollar relatively high. If all this happens as I expect, it should also help drive the prices of both oil and gold higher. Since both of those commodities are priced in US Dollars, there is an inverse relationship (not perfect, of course) here. Thus, the price of USO (United States Oil) should rise as the technicals say it should. And, the gold mining stocks are likely to continue to be good investments, although they will be subject to selloffs in the general market. Once the bond market makes its turn, it won't be long before stocks are following them. Rising commodity prices and interest rates are very bad news for stocks. Bonds are looking like they are forming a top here - which will be a bottom in interest rates. That bottom is due in about a week.

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