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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: T-Lo Greens who wrote (94549)	4/15/2003 1:40:31 PM
From: Real Man	Respond to of 116833

Tony, not sure how this works. I mean, "strong dollar policy". More tax cuts, larger budget and trade deficits, and lower interest rates sound like the opposite to a strong dollar to me. But then again, the US has been running deficits for 30 years. I was always curious how they make the dollar rally happen (aka "strong dollar policy"), when all these factors would be extremely negative for any other currency. Possibly, there is something I don't know of that makes it happen, some magic wand - running deficits for 30 years without currency depreciation seems weird.

To: T-Lo Greens who wrote (94549)	4/16/2003 12:02:58 PM
From: Real Man	Read Replies (1) \| Respond to of 116833

Tony, I found out how it works - basically, the huge US trade deficit (500 billion or so) last year was offset by foreign bond purchases. Stock purchases were minimal, about 37 billion, everything else (about 400 billion) went into bonds. Basically, the "strong dollar" policy assumes that as US falls into abyss, interest rates on long bonds will decline further, which will cause further purchases of bonds by foreigners. It assumes no fallout from the housing bubble, essentially. If debt starts to cave, I would expect these foreign bond purchases to stop, which will cause a dramatic increase of US interest rates and the dollar collapse. This will cause a collapse of US purchasing power and deflation in the World, but gold is very likely to shoot up, because of de-hedging practices by miners and short covering by big US banks. Jewelry purchases are likely to decline further, but investment demand in gold (de-hedging + investment) for 2002 has grown considerably to about 800 tonnes, and will likely grow further, primarily driven at first by short covering. In other words, from the fundamental perspective, if there is further deterioration of US economy (likely), gold decline seems unlikely. If the US rebounds, this will cause narrowing spreads between corporate and government bonds, which will initially lead to corporate bond purchases and higher dollar. However, I would expect that interest rates will move higher then, leading to bond selloff, eventually. In any event, bonds are sky-high now, prone to a rather large decline Regards, -Vi