Bob, you may as well be right. I think what will happen to
US of A should roughly mimic what happened to Argentina.
The difference is, USD is the World reserve currency.
So? We'll get a mix of inflation and deflation. US may
enter hyperinflation at some point, and that's when, I '
think, Yuan will de-couple from USD. Overheating in China is
a direct result of their exchange rate policy. I think they
may reconsider it now, and may even dump some of their reserves to stop it.
With the major World growth engine blown apart,
you'll get deflation in Europe, Australia, Canada,
and many other countries. Japan is likely to get on
their feet after a prolonged slide.
So, what will miners do if gold is worth $1000? I think
it depends how much $ is worth. If $ is worth 33c, I think,
they won't mine like crazy, since the demand for gold
simply won't be there. Then again, it may appear. It's
a matter of perception. If bond investors realize they may
not get their money back, even if invested in US treasuries
(with hyperinflation and rates fixed low, they will do
so at some point, even if there is no default on UST bonds,
which also may happen), gold will shine. For now, it has
been moving up in step with the dollar, which means
basically that investor demand is not there.
I think also that if 10-year rates on UST go above 4.62%,
we may get another big slump in bonds (uptick in rates),
it will kill recovery and lead to debt collapse. The
derivative pyramid constructed around US interest rates is
just way too big, and expanding way too fast. It's
150 Trillion dollars notional value, 6 Trillion dollars
real value. That's the value of derivatives. On top of
that, that's OTC derivatives market, which has no
regulations whatsoever. It's an accident waiting to happen.
Gold will shine when it does happen. Once again, the reason
I think so is the following. Certainly, you track supply
and demand, so you know a lot about the gold market.
However, one argument that it's a controlled market is
the volume of trade. The volume in derivatives makes 98%
of total volume. This means, derivative trading totally
controls gold price, and what happens to physical market is
not of any importance. Derivative market is different from
other market - there are always as many longs as there are
shorts. So, who controls the price? Well, those who write
these contracts. When there is demand for long futures,
they sell, and can walk the price up just a bit. When
there is lack of demand, and minor selling, they buy, and
can walk the price down a lot. It's up to them, totally.
Until there is no physical gold left. Then these contracts
blow up, as we have seen in case of Enron. Or, when the
system of OTC derivative trading blows up. I think, we
may be approaching this point, because the largest
derivative market of interest rates derivatives is about
to come under stress, when rates rise. We have seen that
in July, we may see it again now. Just my thoughts, I
always appreciate yours. |
