STOCKS, GOLD CONTINUE SELL OFF ON YEN ADVANCE
March 5th, 2007I’m trying to understand the clobbering of gold right now, which went limit down in Tokyo today. Maybe institutions need liquidity to cover their yen (carry trade “easy money”) bets as that thing squeezes relentlessly higher. How? Panic yen covering on the one hand, selling off gold on the other?
If the capital from the gold liquidation isn’t going to cover yen positions, where is it going? Ok, I’m going to parse this Reuters piece to mean that the gold dumping is a desperation yen covering move: “currency investors cashed out on precious metals to pay for losses in other markets.”
In any event, the Plunge Protection Team is probably fixing bayonets and locking and loading for the U.S. market open in a few hours. Brace for impact.
Via: Washington Post:
Markets in Asia and Europe fell again Monday, extending their slide into a second week as investors worried about a possible global slowdown dumped stocks that had surged in recent weeks.
Also sparking jitters was the yen’s jump to a three-month high against the dollar as traders sold off higher-yielding investments funded by borrowing money at Japan’s ultra-low interest rates. A decline in this so-called yen-carry trade could hurt global liquidity.
The who, how, and why behind the clobbering of gold is explained in this web page here, with supporting links:
http://bikesummer.org/InvestInTheFuture.html
I’ve made 1,500 dollars in the past week shorting the USD/JPY. It’s sinking like the Lusitania. I’m actually having a ton of fun, while other people are losing money.
Today I’m shorting the British Pound, my short is already 600 bucks in profit. But I’m going to hold onto it to reap some more gains since there’s probably more downwards movement 🙂
March 21, 2007: Kevin, have you seen any confirmation of this ‘nuclear strike’ on the petrodollar?
I wonder how many bottles of scotch Cheney has consumed so far this month? Or maybe he is happy dreaming about taking out Bush 43 and leading the troops (nukes) into battle.
http://www.lwoil.com/newsletters/march_2007.htm
“March 21st 2007 will be one of the most significant dates this month. Iran has outlawed the American dollar and will put anyone in jail that uses it in their country after that date. … Central banks around the world are increasingly diversifying their reserves, including cutting holdings of American dollars, according to a survey sponsored by Royal Bank of Scotland Group PLC, the U.K.’s second-largest bank. “
Coincidence?
http://www.brainyhistory.com/events/1935/march_21_1935_93673.html
“March 21, 1935 in History
Event:
Persia officially renamed Iran “
In addition to what you mentioned, Jim Puplava (financialsense.com) often mentions that if you want to lower interest rates or inflation expectations, commodities will need to go down to show that inflation is under control.
If you believe that the so-called Plunge Protection Team is putting a floor under these markets, it seems plausible that they would also knock gold down a bit. Gold is a reflection of the value of the dollar, which is hovering just above decade lows. Can’t have the dollar looking bad in these markets. To avoid the snowball picking up speed, you have to push all the right buttons.
There are also “bullion banks” that have large gold short positions from past leasing of gold at very low rates, selling it to buy government bonds. gata.org has more on that angle and on central banks selling gold to prop up fiat currencies.
I believe this gold-for-yen action, to some extent, confirms the assessment I put forth in previous comment related to this topic: if fiat currencies are the only legally acceptable mediums of economic exchange, then, in a (deflationary collapse scenario: exponentially increasing carrying costs begin to equal and exceed the available credit and currency to pay those costs), [certain] fiat currencies become highly desirable because they are the only legal resources that can be used to discharge debt or to purchase real economic goods/services.
p.s.
Keep in mind that hyperinflation (central banks actually monetizing the invisible costs of carry under the duress of a gargantuan amount of investors demanding fiat currencies for their plummeting assets–these assets, such as Mortgage-Backed Securities and gold, are the tangible representations of the invisible costs of carry [and of principal], as said costs manifest themselves in the prices of said assets) is always a possibility; if it occurs, then, in the long run, gold will skyrocket in value.
Thus, in my opinion, when gold crashes in the upcoming deflationary collapse scenario, it should be purchased, as I believe They will hyperinflate.
http://news.yahoo.com/s/nm/20070302/bs_nm/markets_precious_dc;_ylt=AiQmfcmBEnlXLeYmskSELOu573QA
The commentary in the preceding article gives credence to Kevin’s assessment:
“Carry trades…were largely to blame for Friday’s sell-out in gold futures, analysts said.
This is because the yen rose to an 11-week high versus the dollar, and currency traders needed to close out their positions in gold futures to unwind bets on riskier assets that were financed by borrowing the Japanese currency.”
It also gives credence to my assessment:
“It’s one thing for people to run around and say it’s a great diversifier and a safe haven to all the risks. But the fact is, when things start going bad, people tend to liquidate their gold holdings in order to pay for the bad stuff,” said Bernard Hunter, director of precious metals at ScotiaMocatta.
“When equity markets start going down badly in particular, and people start getting calls for margins, gold seems to be one of the first things that people liquidate in order to raise cash to pay for losses on other products,” Hunter said.
If you add Kevin’s assessment and my assessment (assuming you agree with them) to the facts in the following marc faber article, in my opinion, it becomes clear that a deflationary collapse scenario is forthcoming; the only question remaining: Will They hyperinflate?
http://www.dailyreckoning.com.au/investment-booms/2007/03/08/
I say yes, because Their goal is to use destruction to create a new economic; categorically destroying the dollar (and maybe other currencies) will force a new currency regime upon the world, and, consequently, a new economic order underwritten by that new currency regime, leaving more ownership of and control over the world’s resources in Their hands, and less in our hands.