At a bottom now for gold? Message Board

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Gold/Mining/Energy : At a bottom now for gold?

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To: Vieserre who wrote (1358)	7/6/1998 1:21:00 PM
From: ahhaha	Read Replies (2) of 1911

Wrong assumption. Look at China. The weak yen encourages China to devalue their currency in order to maintain their relative competitive position. Inflation causes long term adjustments in currency conversions. Rapid change in major currencies causes countries dependent or connected to them to consider fiat altering their conversion rate. They think they have to protect their competitive position. Asia grew too rapidly spurred by external demand for their cheap labor. They are now slowing down. That means a slowing of raw materials demand, but not much slowing. China is in the best economic health in its history. The problems you imply are stretched out of proportion by media looking to create a story. Gold isn't trading based on inter-currency fluctuations. It never does. If the world practices inflationary policies, various currencies will jump around in different ways than if the world practices non-inflationary policies. Gold responds to inflationary policies, not to currency adjustments due to local inflation. Currencies are representatives of value, not value engines or governors. Currency appreciation does not add value to a country unless it changes the attitude of her peoples. The issue is the lag. When Asia stabilizes, the inflation in the US will become apparent. The FED will raise rates but not enough to induce pain. The degree of pain that is necessary to break union inflationary wage demands is now too high. Non-union labor economy would be significantly effected too. The FED will therefore only let interest rates rise a little before adding reserves at the margin to prevent them from rising any further. After all they do have the Humphrey-Hawkins Mandate to create prosperity. This interest rate management policy creates an equilibrium level that rises, a translation in the stability level. Until the FED finally throws in the towel and stops interfering by letting the market seek its own equilibrium level, the price of gold will rise. The real issue is that the world is still bringing labor on stream at rates way below the cost of labor in large economies at any level of quantity and quality. You may call it outsourcing. The world also has developed almost a zero cost of production for many goods because of technology. Any intermediate move by gold upward due to reticence and foot dragging by the FED with respect to our domestic circumstances will only enable the major intrinsic deflationary down trend put in place by the technology and outsourcing to be approached from below. Once gold rises to a peak when the FED lets go like in 1980, the price of gold will fall perhaps to new 50 year lows. The only force that can keep gold propped up is the world wide unionization of labor and the rebirth of the glories of socialism. Sounds ridiculous but I believe it will happen in 10 years once the third world has their economic infrastructures solidly in place.

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