It would take a massive, coordinated move amongst the G-7 to stop the flow of capital to the U.S. right now. Because the major alternatives are extremely unappealing.
I see the current world economic crisis in two phases.
First, expect to see more of the same in u.s. securities markets, with minor interruptions as the Japanese sell off some of their boatload of dollars. A run on the yen is a strong possibility.
The bond market will remain bouyant. The stock market will go sideways (to only slightly down) despite overall horrible news on the earnings front. Accordingly, the stock market will shatter all (U.S.) overvaluation records.
An increasing proportion of flight to safety money will, however, find its way to gold. And because this little bit will have a disproprtionate affect gold will rise about evenly and slightly faster than the dollar.
The supply demand dynamic also argues in favor of a higher price. And if cb's ever had a gold price agenda, we're fast reaching the point where each will have to act in its own individual interest and forget about an agenda. The cb's will find they have bigger fish to fry.
Phase two happens when the financial crisis in Japan becomes so critical that money stops flowing out of Japan and reverses. Japanese assets have a ways to go yet, but will someday become undervalued, as panic replaces bearishness. Also, a bankrupt has little choice as to which assets to liquidate, and the forced sale of tresuries, stocks and real estate will send U.S. markets into a tailspin.
By this time, the euro will generally be regarded as wall paper.
And the price of gold will surpass what you or I would think reasonable. |
