G-20
meeting limited competitive devaluations
Even the media now treats G-20 meetings
as either non-events or highlights the emptiness of their concluding
resolutions. We shouldn't continue to look to them for real change or
commitment. But this weekend's meeting produced more than expected in the
statement that was made that nations had agreed to not continue 'competitive
devaluations'. The only nation admitting to such practices is Japan. As
markets opened on Monday the Yen rose against the dollar to a new 15-year
high at 80.2 before falling back to 81.29 ahead of New York's opening bell.
All eyes are on the Yen to see what really is important to Japan,
international interests or national ones.
China was not party to such statements
as it has a Yuan level that it considers right at the moment [after putting
national interests ahead of international ones]. The meeting didn't let the
U.S. get away with it either and pointed out that quantitative easing is an
indirect means of devaluing an exchange rate. And so it is. With U.S.
citizens in difficult financial straits buying the cheaper adequate imported
goods, much of the new money to be printed will flow out of the dollar to
other parts of the world, not least to earn more interest than charged
sitting in emerging nation's government bonds. So here we are at the same
place as last week, but with a few more good intentions. What has come out
since that meeting is that the U.S. and China are appearing confrontational.
The gold market expressed its disdain
of the intentions issued by the G-20 by taking the gold price back to $1,345
at the morning Fix. We've seen $1,380 and the drop off last week was sudden.
The dollar fell this morning back to $1.40 before pulling back to the $1.387
area when New York opened.
What next?
To remove currency crises from our future the global
currency markets need global cooperation sufficient to overrule national
interests. That's not happening and won't happen in our opinion, so we expect
more falls in the U.S. dollar once Q.E.2 kicks in. We look around the world
for reasons to change the fundamental picture for gold and can't find any. We
do see some saying it is time to sell gold. We know of one fund that has
shorted gold. So our search for reasons to sell is sincere. With that in
mind, these are some of the questions we are asking: -
- Has
uncertainty and instability changed leaving us confident and certain of
a stable future?
- Have
the nations agreed a sound, effective, currency system that caters for
local national problems on the Balance of Payments front?
- Have
they agreed systems that effectively enforce this system, so that it is
in national interests to subject themselves to that system?
- Has
the global economy in all its major parts returned to real growth where
economic imbalances are removed?
- Are
we certain that the Sovereign Debt crises are over?
- Do
we expect the shift in world wealth and power to Asia to be smooth and
trouble free?
- Have
the votes at the I.M.F. been changed to fully accommodate India and
China's proportion of economic power or will the U.S. remain in charge
irrespective of such changes??
- Have
central banks turned away from gold confident and fully reliant on
global currencies.
If your answers are 'yes' to these then it is time to sell
your gold.
One of the dangers in today's world is that emotion can
replace reason very easily. Our own troubles can engender such hopes that we
lose balance and decide based on our emotions, to our cost. That's why we
prefer to use the process called extrapolation. This is where your take the
values, trends and activities of today and project them forward to paint the
investment scene of tomorrow. What are these?
What's happening now that dictates tomorrow?
The G-20 meeting this weekend was useful in that it showed
us that a real desire to agree with each other just isn't there.
The U.S. is understandably clinging to its leverage over
world affairs wanting to change other nations, but unable to change its own
economic and currency situation. There are efforts there, but these have
proved inadequate to date. The Fed has expressed its fear that more QE is needed
to bring about not just a real recovery, but to prevent a slide into
deflation that will make it nigh on impossible to get out of once it gains
momentum.
On the political front the U.S. is approaching an
emasculation of power so that it won't be able to take sufficiently strong
action to pull itself out of its hole. And if the mid-term elections do
result in this it will be so for two more years. It's these next two years in
which the developed world needs to take strong action to stay sound, as Asia
rises in economic power and importance. As it stands now the developed world
can't take such actions. It's not just about the dollar and the currency
world becoming stable again, it's about huge readjustments being made as
wealth and power move east. The currency system is facing major strains and
changes of interests and exchange rates during this time. Without cooperative
action by the world's governments only friction will ensue. And that is what
lies ahead if we extend today to tomorrow.
As to a sound global currency system ahead we find it
difficult to see that in today's events. The Yuan and perhaps the Rupee have
to gain greater positions in the world money system. It is clear that China
should be able to raise its leverage inside the I.M.F. to at least the same
level of voting power as Europe. The U.S. should relinquish its deciding vote
and be capable of being overruled. Is that likely? Unless the I.M.F. sees
such changes, there will be no effective body that can arbitrate the
structural changes that have begun already in the world economy and world
monetary system. And that is what lies ahead if we extend today to tomorrow.
Have the nations of the world accepted that the changes
that lie ahead of us all are so large that international interests must take
first place in such a way that overall all national interests can be
protected and no individual nation establish precedence? Unfortunately not!
The world's political systems are designed to cater for national interests
irrespective of the impact on international ones. It is the nature of
democracy and the nature of holding onto power even where no democracy
exists. That won't change. So we see a picture of nations bumping into each
other's interests rather like musical chairs, where some nations just can't
find a chair.
As to growth, with China and other poorer nations able to
supply goods at far cheaper levels than the developed world, either wages
must drop to Asia's levels or the developed world must put up blocks to their
entrance into their world. Unless they do, developed world currencies will
sag even as Asia's want to rise. China is gaining so much from holding the
Yuan down and building surpluses that it won't change until it is ready to
promote the Yuan to a global reserve currency that it controls and price its
goods in the Yuan only. That process is well along now and could be
tomorrow's reality in 2011. Currency crises will proliferate then, with the
dollar and the euro in the spotlight. And that is what lies ahead if we
extend today to tomorrow.
Have the austerity measures been sufficient to resolve
Sovereign Debt crises? Giving the Eurozone nations the benefit of the doubt
we accept that they may succeed [despite the belief in some quarters that
Greece will default in three years time and the U.K. looks like tipping back
into recession]. It may be at the cost of more double-dip recessions in other
countries or worse, but that's not the point. The point is that the U.S. is
just about at the top of the list of nations that are over-borrowed. What
austerity measure have they undertaken or will undertake? We have to wait and
see if such measure will be successful where applied. What of nations that
are over-borrowed and are doing nothing about it. We need strong actions
alongside strong growth world-wide before we can gain confidence that such
crises will go away. We can't see it. And that is what lies ahead if we
extend today to tomorrow.
Have central banks reaffirmed their confidence in the
currency system we now have and continued to sell gold reserves, completely
reliant of currencies? What we have seen are central banks turning from
selling 500 tonnes a year to buying 500 tonnes [at least] a year, as they
realize that gold is badly needed when currencies fail. And more of that is
what lies ahead if we extend today to tomorrow.
Clearly then we see no reason to believe that gold has
peaked. It's not about a technical picture dictating supports and resistances
it's about a globally changing and broadening market that is altering the
parameters of the technical picture. With investors like central banks
uninterested in price, only acquiring gold at any price, how can the
technical picture dominate?
So, if gold has not peaked what lies ahead for gold and
silver?
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your
wealth effectively structured to avoid the pernicious effects of the regulatory
climate that we have moved into? It should be and we can help you to do so
professionally and within the law. Please contact us for any help regarding
this at: gold-authenticmoney@iafrica.com.
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