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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: loantech who wrote (32681)	11/24/2004 12:42:57 AM
From: Taikun	Read Replies (4) \| Respond to of 39344

My premises are: -US repatriates offshored production -US domestic demand is now primarily supplied domestically -foreign nations cannot easily replace US demand in another countries or their own -the initial euphoria resulting from cheaper inputs changes amid the realization that export markets have shrunk in size (ie the US is over 20% of China's exports) -other countries deflate to preserve jobs at home -overall commodity consumption drops -gold holds its value as all currencies devalue to try to remain competitive and investors try to preserve wealth in an instrument that cannot be manipulated The US is deflating its currency, which will make the US relatively more competitive over the short-term. Other nations, reliant on the US for exports, but in some cases (China, Japan) tired of growing US budget deficits, will initially hail their appreciated currencies as beneficial to imports (Japan said this, so did China) of raw materials, energy. Then, the reality sinks in. The export numbers will show a decline in exports. Perhaps the Yen appreciates to 50, killing the economy in the process (witness now the high Yen, weak Nikkei vs the US relatively strong S&P, weak currency). Eventually these countries cannot find a substitute market for their goods, and stimulating the domestic economy fails(look at Korea's failed attempt at credit expansion earlier in 04), so they will see devaluation of the currency as an answer. Stimulating their domestic economies will take a few years. Workers not laid off already will quickly accept wage concessions to keep their jobs. Perhaps in Canada the feds raid the oil coffers in Alberta. As other currencies deflate to compete with new domestic US production, the purchasing power drops, leaving them with less purchasing power of commodities. The Swiss Franc gives us an early indication of what can happen. The high currency has led to a lack of competitiveness on the world market, high unemployment at home. By now, global commodity consumption has already dropped a leg, when US consumption was taken out of the picture. Next, foreign nations must also cutback on commodity consumption for internal demand in addition to the cutbacks in commodity demand for exports. Gold, which is not manufactured by printing presses, the price of which is not altered by interest rates or changes in money supply, will see its demand rise. Initially (such as is occurring now) USD reserves will be replaced with other paper currencies (Euro, Yen, SwFr), but later, devaluation will be in vogue across all currencies. The rise of gold in USD (but flat or negative in currencies in countries like Canada) will eventually become the rise in gold in all currencies, because right now only a portion of the decreased USD reserves go to gold, eventually more goes to gold in the US and in other countries, as investors find out all currencies are devaluing. As for gold and silver equities, there are clear examples of physical gold outperforming gold equities amid an equity selloff in the last bull run in gold, and I se no reason why it wouldn't happen again It depends what your objective is. I suppose if you want to ride out the overall selloff, or add to positions, fine, but I don't want all my gold positions at the mercy of the overall market. The market can be extremely irrational short-term and my objective is to survive an ugly three years or so.