Wednesday, August 13, 2008

Telegraph: Stage two of the gold bull market is just beginning

Source: Telegraph Blogs
Wednesday, Aug 13, 2008

'...What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.

When that happens - if it is not already happening - it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.

The Fed has already invoked Article 13 (3) - the "unusual and exigent circumstances" clause last used in the Great Depression - to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world's two biggest financial institutions.

Europe's turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.

When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the Heavens that so such crisis had yet happened.

It will.

Gold bugs, you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder...'


Chrysotheras said...

The dollar has performed another dead-cat-bounce based partly on other FX weakness (euro, cando, quids, etc) and partly on a short term vacuum-like deflationary effect, which is BTW marvellously explained by Enrico Orlandini's article: Cautiously Pessimistic!
Of course bullion bears -now out of their caves- waxed growling the usual anti-gold rhetoric (e.g. Gartmann Letters)

...meanwhile...keep buying on dips!
(if you still have any dry powder on'ya!!)

Chrysotheras said...

...and for a more behind-the-scenes explanation of US$ bounce, with a touch of irony and great humour, read my post on Mogambo Guru's Market ramblings.

Apprentice said...

The dollar has been acting quite weird, indeed. "Interventions" as Mogambo says...