Gold Forecaster
- Global Watch
Gold - The investment climate
changes
Julian D.W.
Phillips
Gold Forecaster snippet
Sep 14, 2007
Think back to two months ago.
Now think back to today. There have been some big changes in
confidence levels, not only in global growth, but the financial
structures of the world. Lots of reassuring words are flying
around, but few are convinced that all is well. This would not
matter so much but some of the statements of concern have come
from the leading figures in the globe's main financial institutions.
Mr. Ben Benanke has warned that the U.S. Trade deficit is unsustainable,
he also warned of a potential waning of foreigner's appetite
for U.S. Treasury securities. These warnings did not come with
solutions, but were simply warnings. The O.E.C.D. 's has warned
that financial market turmoil may reduce global growth. The O.E.C.D.
chief economist said the credit markets had serious imperfections
and called for more supervision of the U.S. mortgage market.
In summary, the current global situations facing Central Banks
is as follows: -
"The major central
banks generally face an economic outlook characterized by scant
spare capacity and unemployment rates close to or below their
structural levels, as well as high energy prices and rapidly
rising food prices. Outside Japan, inflation rates - despite
recent easing in some cases - are still at the high end of what
is consistent with price stability. At the same time, they are
confronting risks to financial stability, which have prompted
them to step in with large and [hopefully] temporary injections
of liquidity. Consequently, central banks may have little choice
but to cut interest rates to safeguard financial market stability,
including the Fed." - But
it is going to take far more than a rate cut to resolve the problems
of the global financial systems.
Who can resolve these problems
and who has the will to solve them - nobody it seems. Other warnings
have come from the I.M.F., from European bankers and no doubt
we will hear many more warnings as emerging nations expand to
stretch an already overstretched global financial as well as
resource capacity to accommodate their growth on top of global
problems in the banking system. With confidence already buckling
world wide we have to ask ourselves, are we listening? More importantly
are those in a position to correct the situation, listening?
Gold is listening, as are gold
investors and they will listen still more as they protect themselves
against the future as well as against today's concerns. More
and more people will become gold investors. The price of gold
today isn't being driven by the simple demand and supply formulae
of the typical commodity markets, it's being driven by concerns
over the present and future state of the global financial and
monetary system. It will rise in direct proportion to
further drops in confidence, rises in uncertainty and the growing
need for a sound financial and monetary system that can accommodate
the emergence of nearly half of the globe's population. Gold
is being elevated to the status of a sound investment in these
extreme times [which it always was before 1980].
How do we get a true sense
of proportion in such a climate? Platitudes, reassurances, the
"so far, so good" attitudes, tend to pull us away from
sound judgment, so we have to protect ourselves as best we can.
The first question we try to ask is, "when will these warnings
mature?" How can one put a time scale on oncoming disasters?
You can't, so you have to prepare well in advance. Oh, be certain
of one thing, when they come into view, you will be part of the
madding crowd, if you haven't.
Take a look at the U.S.$ Index
that Peter Spina [of the Gold & Silver Forecaster]
has highlighted for so long now. He's pointed out in the Technical's
below [U.S.$] the critical support level on the $ chart is at
80. There he states: -
'Note: I keep returning
to the long-term US Dollar Chart to stress the significance
of the 80-area support. Long-term support is very significant
around 78-80, which we expect to see retested once the 82 area
supports fall - see short-term commentary above. A bounce is
expected but we believe in an eventual breakdown of the massive
80 (78-80) supports."
We are currently at 79.456
on this index and support is in the process of being battered.
This has a deep significance
for our future that goes beyond the $. It is now clear that below
this level we could see a fracturing of confidence in
the $ as the sole global reserve currency. A breach of such support
will herald not only a fall in the exchange rate value of the
$ but will spawn of a whole host of consequential tensions and
crises related to the $, the global monetary system spreading
into the global political arena. The sub-prime crisis will pale
into insignificance against these approaching dramas.
As we have seen for some time
now, such weight rests on the $, that the major holders of surplus
$'s, the major traders in the $ and the dealers in the $, all
want the $ to hold up and will do all in their power to support
the $.
But it seems inevitable that
the weight of downward pressure on the $ will prove overwhelming.
It is only a matter of time before it falls. Don't expect for
a moment that the $ is going to fully collapse, though. It will
continue to be the globe's most important currency, because it's
needed and is the only one around right now. Any replacement
will have to grow into that role, not be thrust there.
Having said that, such a breach
of support will bring about a sea-change in all markets around
the globe, making the traditional risks that have been associated
with gold seem minor. Gold is already starting to appear as an
investment stabilizer and a contra investment to other investments
and, over time from now on, will find growing recognition as
such. This will take gold to a new level in terms of price.
Overall, Central Bankers
have recognized that the globe faces a serious problem that will
not fade away and threatens growth and stability. Unless solid
action is taken soon both to prevent further loss of confidence
and to restore past levels of confidence the global economy could
take a dip alongside further destabilizing of U.S. & global
markets, including global foreign exchanges. Individuals and
institutions will increase their gold holdings and Central Banks
will become hesitant to sell any more gold.
Please subscribe to GoldForecaster
for the entire report.
Sep 14, 2007
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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