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"...Want a racing certainty for the
coming year? Central banks everywhere will either cut or hold interest rates,
making the currency markets a suck of ever-shrinking real worth..."
WHO CAN REALLY SAY
what 2008 will bring?
A post-Olympics slump in China,
perhaps, tipping its near-10% annual rate of expansion into an historic
depression...
The first annual fall since 1995 might
also hit UK real estate
too, unwinding a chunk of the near-quadrupling of London house prices...
As for the United
States, a bottom might be found in Florida or Californian real estate. But
there's more chance of Paris Hilton winning the White House with Ron Paul as
her running mate.
Yes, the Dow could push higher to new
all-time highs...even measured in terms of the Euro, rather than simply
counted in the fast-vanishing US Dollar. But the New Year has already brought
the world one new all-time high that plainly says otherwise.
And it only took one trading session for
gold to jump 2% and break its three-decade record of $850 per ounce.
The anti-everything-else, gold clearly
signals more trouble ahead for the rest of the world's investment markets -
starting with the very value of money itself. That's the nagging doubt that
drove Gold Prices
higher every year between 2001 and 2007. Here at BullionVault, we
think it will take more than a bounce in the Dollar to reverse gold's
seven-year bull market, too.
 
We don't doubt that newly-penned gags on
Jay Leno's Tonight show might turn up this year alongside a pause in
the Dollar's collapse.
By the end of Sept., says the latest
data from the International Monetary Fund (IMF), the US Dollar accounted for
less than 64% of foreign currency reserves worldwide. That might cue the
Greenback to thumb its nose at the Euro, now risen
above 26% of official cash reserves worldwide.
All the Dollar-doom cover stories in
magazines like The Economist and Newsweek only add to the case
for a contrarian play right now. Everyone agrees the Dollar looks sure to
keep falling, even the policy wonks of the world's central banks. And as a
very successful options trader once reminded me, the markets are always sure
to do whatever it takes to screw the most people the most.
So maybe it's time for a surprise. Spanking
the world's central bankers - and sucker-punching private investors, now busy
gearing up on the forex markets - a turnaround in
the US
currency might just coincide with a genuine political crisis in the 13-nation
Eurozone, too.
But "with Bernanke
at the Fed and Paulson at the Treasury, and a Euro that could face some
problems (a break-up, some believe) because of badly deteriorating economic
conditions in Italy, Spain, Portugal, and Greece," as Marc Faber writes
in the latest edition of his Gloom, Boom & Doom report,
"precious metals are likely to outperform financial assets for some
years to come."
Indeed, whatever comes in the
Presidential race - and no matter what happens to inflation in the cost of
living, now running at multi-decade highs in Europe and China, despite their
surging currencies - the real driver of gold's seven-year bull market looks
to be the New Year's one racing certainty.
Governments and central banks the world
over will refuse in 2008 to protect cash savers and bond buyers. They'll cut
or hold interest rates in the forlorn hope of helping debtors instead,
destroying the buying power of all official money.
Yes, gold might fail to rise as a
result. But that would prove a heart-stopping shock, far more surprising than
the most likely "shock" - that gold keeps on rising even if the US
Dollar stops falling against other government currencies.
Just take a look at how the Gold Market got
here today. The new record highs hit on 2 Jan. 2008 came for nearly everyone
Buying Gold on the last trading day of 2007, no matter whether they bought in
US Dollars, the Euro, British Pounds, Swiss Francs...Canadian, Aussie or New
Zealand Dollars...Indian Rupees or South African Rand...Thai Baht or Chinese Remnimbi.
Only Japanese investors still hold a
currency today worth more against gold than at some point in the past. And
the irony there is so tasty, Burger King should
offer it on the Whopper.
Near-zero interest rates failed to
kick-start the Japanese economy for 18 years after its real-estate and
financial bubbles popped. Tinkering with target rates of less than 1% since
1995, the Bank of Japan still hasn't worked any magic by trying to destroy
the value of the currency it prints.
Yet it's the Japanese lesson of the
early 1990s that's now pushing the US Fed, Bank of England, ECB in Frankfurt
and pretty much every other developed-world central bank to offer up more
money via cheap interest rates as a way of defending the current financial
bubble from collapse.
How come? Mistaking more money for more
wealth whenever they look at Japan,
central bankers now have this error scratched onto their corneas. "The
failure to end deflation [meaning falling prices, wages and real estate
values] in Japan
does not necessarily reflect any technical infeasibility of achieving that
goal," announced Ben Bernanke in a speech of
Nov. 2002. Blaming instead a "structural" need to restore Japanese
banks and corporations to solvency - an eerie forecast, perhaps, of the huge
short-term liquidity injections co-ordinated by the Fed, ECB, Bank of Canada
and Bank of England right now - he added that:
"I do not view the Japanese
experience as evidence against the general conclusion that US policymakers
have the tools they need to prevent, and, if necessary, to cure a
deflationary recession in the United States."
Put that another way, as Bernanke himself did in 2004, and "excessively
cautious monetary policy did play a role in [Japan's] lost decade...because it
did not do all that it could have done to arrest and reverse the
deflation."
Excessively cautious monetary policy?
The Bank of Japan took interest rates for cash savers below 0.2%...and it's
left them there for the last 13 years. The only Japanese citizens to benefit
so far have been investors choosing to Buy Gold.
Nearly two decades after the Japanese
offered the world a lesson in what can happen when excess credit and
financial innovation turn first to bubble and then bust, average wages are
still falling, down another 2.1% in November. Household spending fell 0.6%,
whilst industrial production dropped by 1.6%...and the cost of living rose by
0.4%.
All this in a currency that stubbornly
refuses to sink, meantime, despite the Bank of Japan's best efforts to
destroy the very money that it prints. Proof positive, in fact, that a
falling currency isn't necessary for Gold Prices to
rise. Need more? Gold gained 31% last year for British investors - its eighth
annual gain on the run - even as the Pound itself hit a two-decade top versus
the Dollar. The European single currency gained nearly one-fifth versus the US currency
last year, but the Gold Price in Euros
also rose, gaining more than 21%. (That also disproves the common belief that
gold and the Euro move in sync.)
Indeed, the price of gold measured
against the world's five most important currencies - the US Dollar, Euros,
Yen, Pound Sterling and Canadian Dollar - has now gained more than 150% since
the start of this decade. Real rates of interest, on the other hand, have
trended sharply lower, falling across the world even as oil-driven inflation
- itself stoked by excessively easy money policy - has begun to roar.
"Japanese equities are out of favor and so, as a contrarian play for 2008, are among my
top picks," says Marc Faber in the Gloom, Boom & Doom report.
Funnily enough, "aside from Japanese equities, a contrarian play would
be to buy the US Dollar," he goes on.
"Sentiment and headlines are so
universally negative that at least a short-term rally should get underway
shortly. The only problem I have with being positive about the Dollar is
that, whereas people are universally bearish about the Dollar, they are also
universally still long a gargantuan quantity of dollars!"
As for Dollar alternatives, on the other
hand, "among commodities and currencies my preferred asset remains
physical gold held outside the United States, for the simple
reason that - depression or inflation - it is very likely to outperform
financial assets.
"For gold, I believe the best is
yet to come!" concludes Faber. Whereas Dollar rally or not, we believe
here at BullionVault,
the currency markets will prove just a suck of ever-shrinking real worth.
By : Adrian Ash
Head of Research
Bullionvault.com
City
correspondent for The Daily Reckoning in London,
Adrian Ash
is head of research at www.BullionVault.com
– giving you direct access to investment gold, vaulted
in Zurich, on
$3 spreads and 0.8% dealing fees.
Current gold price, no delay | FAQ | Detailed outlook for 2007
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Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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