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Gold/Mining/Energy : KITCO - Gold discussion -- Ignore unavailable to you. Want to Upgrade?

To: Bill Grant who wrote (140)	9/25/1998 2:30:00 PM
From: sea_urchin	Read Replies (2) \| Respond to of 989

Bill : Re the Euro and gold Many people are confused about the relationship between gold and the currencies so you don't have to feel bad if you don't understand it. To start with, let's accept that the relative value of the currencies cannot be arranged by decree. There has to be a perception of value equivalence in the market. So, even though it may not suit the US to have such a strong dollar, the Fed cannot simply make the dollar cheaper by saying it is cheaper. For the dollar to be cheaper the other currencies in the "basket" have to be more valuable. And, that value has to be justified either by the strength of the economies of the relevant countries or by the backing of something valuable eg gold. Because the US economy is so strong, the dollar is very valuable at the moment. Unfortunately as result of this, the US is functioning like a "black hole" --- sucking into itself the wealth from all over the world as investors seek a "safe haven" rather than the expectations of future growth or whatever in their own countries. And, the more the economies of the other countries collapse and implode, the more the US sucks up their residual wealth. As you see, this creates a viscious cycle where the US ends up actually destroying the economy of world. And owning everything! You can thus see that the US is balanced against everyone else --- economy-wise and currency-wise. For the world economy to function properly this balance has to be restored. At the moment it is heavily skewed in favor of the US. If it remains so the "engine" will seize up. Something has to be done either to slow the US economy and/or to increase the performance of the economies of the other countries The value of gold (POG) functions by strengthening the other currencies against the dollar -- ie increasing their value. At the moment, however, because the non-US economies are generally so weak, the last thing those countries need are strong currencies. Having weak currencies enables them to export competitively. And therefore, one would imagine, the last thing they would need is an increase in the POG so that their gold-backed currencies (partially) can become more valuable. Once those economies are strong, however, THEN their currencies can become strong, too. That is when the POG can rise and the bull market can start. That is why the European CBs sold off their gold --- to enable their currencies to become cheaper and to enable the Euro to be competitive against the dollar and yen. It wasn't just a conspiracy against the goldbugs! It really does seem like the world economy is a zero sum equation where, if one person is rich, the other has to be poor. The idea behind it all was that everyone could be rich at once. Anyway, that was the story we were all told. This does not seem possible. In conclusion, it appears that the dollar HAS to weaken, as it in fact has, if only to halt the capital flows to the US. That alone should be sufficient incentive to invest in some gold/shares. Even though the promise of a new bull market in gold is uncertain.