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On 26 November 2009 the State Bank of Vietnam devalued
the dong by about 5%. This is the third instance of currency devaluation in
two years. The FRN$ is likewise being devalued against gold.
A few weeks ago I observed that those buying gold
in Vietnam are paying a
premium and that:
Gold is money and is reasserting itself as currency in Vietnam. After 18 months of failed policies the
helpless government has retreated from the import restrictions because the
market is more powerful than governments.
Bloomberg reported,
The State Bank of Vietnam set a dong reference rate for
tomorrow that is 5.2 percent lower, at 17,961 per dollar, compared with
17,034 today, it said in a statement on its Web site. Policy makers narrowed
the dong’s daily trading band to 3 percent, from 5 percent, effective
tomorrow, and increased the benchmark interest rate for the first time since
January, to 8 percent.
GOLD PARTY GETTING STARTED
As I observed on 9 September 2009 when the gold party was getting started, with the
price at $995.75:
200 day relative price of gold is at 1.08x …
Based on seasonal trends gold and silver will be strengthening, with the
strongest months in September and November
This upleg in gold and silver will have significant
strength because of the long period of consolidation just like in 2004 and
2006 which provided the foundation for the uplegs in 2005 and 2007 that took
gold from $400 to $700 and $650 to $1,000, respectively. If the current upleg
is similar to the previous two then the 200 day relative prices for gold and
silver at the top of this upleg would be about 1.5x and 1.7x, respectively.
This puts $1,300 gold and $25 silver within range
without greatly exceeding previous trading norms.
GOLD PARTY DUE FOR A BREAK
On 25 November 2009 Reuters reported:
Gold struck a record high for a second time this
week, rising above $1,178 an ounce on Wednesday, as the dollar slipped and a
newspaper reported that India was “open to buying” more gold from
the International Monetary Fund.
Gold has jumped nearly 13 percent since the
beginning of this month as investors poured money into the precious metal
after India’s central bank announced it had bought 200 tonnes of
bullion from the IMF.
The current price of gold is about $1,175 per ounce
with silver at $18.70. Like I predicted, November has been a strong month for
both of the metals. The 200dma for gold is $967.86 and $14.73 for silver.
This puts gold at 1.217x its 200dma and silver at 1.27x its 200dma.
WHAT AND WHEN TO BUY
Usually in a strong bull market silver will trail
gold and then rapidly play catch up. The vast majority of silver’s gains
happen in a relatively very short period of time. If gold is like owning a
cruise ship then silver is like owning a speed boat.
Because gold and silver have moved so quickly so
fast, seasonality and the need for consolidation of these rapid gains therefore
it is likely prudent to protect some gains while still maintaining exposure
to the upside; for example, using put options. While over halfway there from
when I predicted, I still think $1,300 gold and $25 silver is within range
but there will likely be some correction and consolidation between here and
there.
Thus, buying gold is not nearly as attractive as buying silver or even buying
platinum, which is up
$340 per ounce since I recommended platinum about four months ago. I am still extremely bullish
on platinum and if acquiring a physical store of the precious metals and
given an efficient and cost effective option, such as with GoldMoney, between platinum, gold or silver then I would recommend platinum.
SUPER DROOPY VIETNAM DONG WHEN PRICED IN GOLD
With the 5.2 percent devaluation against the FRN$
and with the FRN$ losing nearly 13% against gold in November alone and $358 or
43% over the last 12 months the only conclusion is that the Vietnam dong is
taking a beating when priced in gold. In other words, it has gone from 18.4M
dong per ounce in January to a high of 28.85M or about 57%.
With Vietnam’s widening trade deficit, the
current account deficit, the demand for dollars and gold instead of droopy
Vietnam dong, the global economic slowdown which will dampen exports (surely
one of the reasons for the devaluation) and evaporating foreign exchange
reserves, the monetary policy and condition of Vietnam will continue to
erode. This will place further pressure on the already droopy Vietnamese
dong.
CONCLUSION
Vietnam is having a terrible time attempting to
maintain their monetary policy. Economic law is being applied and gold is
playing its prominent role like it always does. The government can resist but
resistance is futile.
Likewise, the FRN$ is evaporating before the just
heat of gold. Gold is nowhere near a bubble which is difficult to blow when
so much of the demand is fully
paid for and not
subject to margin call or default.
But the real bubble is the FRN$ and demand is
showing the first significant hints of declining. After all, it is becoming
the carry-trade currency. Americans with the monetary metals will be as
fortunate as the Vietnamese because all the barbarous relics of fiat
currencies are evaporating. The Great Credit Contraction has arrived and grinds on.
DISCLOSURES: Long physical gold, silver, platinum and no position in the problematic SLV or GLD
ETFs.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young University,
a law degree from California Western School of Law and studies the Austrian
school of economics. He works as an entrepreneur, investor, journalist and
monetary scientist. He is a strong advocate of the freedom of speech, a
member of the Society of Professional Journalists and the San Diego County
Bar Association. He has appeared on ABC, NBC, BNN, many radio shows and
presented at many investment conferences throughout the world.
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