JDH Commentry. Gold: Now, or not quite yet?

[sunseeker]

JDH today.

Last week I made the case that $1,000 is a psychologically important level for gold. I said that a sustained close above $1,000 is long term positive for gold. That is, in hindsight, and imprecise statement. A close above $1,025 is probably a more accurate indicator of a sustained break out.

I agree but with only the one caveat from my perspective. Gold increased by 1.74% (USD) this week, but only rose 0.09% in GBP (£). In February gold at one point was $976.2 which equates as £682.5. Now gold is $1005.10 and that equates as £623.26 for me.
How does my UK perspective compere with others outside of the US?

Still I can hardly complain because the companies tend to move up or down on how gold/silver/uranium perform against the $, so I am well in profit.

Recent mentions from me:
FRES (LSE) paid 6.20 now 7.355 GBP (I still have some that I bought @ 2.25 but sold enough to give me a free ride in March. Silly in retrospect).
URU (LSE) paid 0.22now 0.37 GBP
ANI (TSX) paid 0.43 now 1.12 CAD
PEZ (TSE) paid 0.72 now 0.93 CAD
PNP (TSE) paid 1.7 now 1.7 CAD

I have others that I didn’t mention some even better some worse. But I won’t name those because I did that once before and I received flack for not having mentioned my position here before hand.


ATB 

Ps
I just remembered:
In fairness I should mention CRM (LSE) bought 4.52 now 4.55 GBP (but received an interim dividend of 0.06).

[Uboat]

JDH: your argument for the devaluation of the US dollar sounds plausible, however,

major trading partners of the USA in the G20 club, will try to prevent this or devalue their currencies as well to protect exports/imports, thus eliminating a stimulus for the US export industry (employment);

USA and G20 will cover up a declining dollar/euro etc. by curtailing growth of the gold price (PPT teams) to avoid scaring the public and show strength;

at any sign of international unrest/wars (another source of employment) the US dollar will become the safe haven again and will rise.

While the gold price may be prevented from drastic increases, the flight to safety from declining currencies and inflationary pressures will increase the price of most commodities (e.g. China keeps buying commodity companies), including house prices,

where your argument will work as long as mortgage rates can be held low in an inflationary environment “Plus your house price went up, so you feel good again, and you start spending.”

[JDH]

I agree.  We are in a rush to the bottom, as every country devalues their currencies in response to everyone else's devaluation.

I think China will be the key.  They don't want to hold U.S. dollars (or any other currency), so what do they do with their reserves?  You are correct, they can use them to buy some commodity companies.

But can China spend $2 trillion dollars just on commodity companies?  Or just on gold? No, they can't, so over time they will spend the money on all of the above, which will increase the prices of gold, other commodities, and commodity shares.  And, I assume, that will continue the fall of the U.S. dollar.

Of course I could be completely wrong, and even if I am correct this could take months or years to be fully accomplished, so we will only know the answer with the benefit of hindsight.

[Bottomfeeder]

The dollar is something that I have been watching closely for a while now.  I would offer this to the group.  Government action in "printing dollars" is not to be confused with how the market "values" dollars.

Just go back and look at the dollar valuation when TARP was created.  The dollar increased, which of course is counter-intutive to the actions themselves.  Was the dollar really worth more or were equities worth less?  Clearly equities were worth less as it played out through March of this year. 

The dollar is currently (last 12+ months) being valued based on fear alone, not its intrinsic value.  If you were to go and look at the pasts weeks action on the dollar relative to equities it proved itself to be true again.  As the SnP reversed on Wednesday the dollar increased.  Is the dollar suddenly more valuable as monetary supply increases?  Of course not.

The dollar could be putting in a bottom here, although it is still a bit premature as it has still not broken its downtrend line, which I measured from the top of, coincidentally March 6, 2009.

The dollar will become increasingly more valuable should/if SnP support levels are broken..  Iguess what I am trying to say is that I wouldn't go intrepreting value based on government actions per se', but would recommend that valuations be considerd based on the "markets" valuations, as that will  the truth, and furthermore dicate equity values gong forward at least until it no longer does.

All of this goes back to my thesis about "what do YOU think is really happening" relative to your investment thesis..  IF you think the economy is in the tank, which I believe would be a deflationary envirionment, then you should be buying dollars and selling hard assets, if you think things are improving buy hard assets, and let the inflation come.

I am watching the dollar downtrend line on its own for the answer and would look for BIG selloffs in hard assets if that downtrend line is broken.  HOWEVER, I am also anticipating that the next two quarters earnings are going to beat the street, which will send equities to levels  that will look absurd, maybe 1200 SnP by years end.

I will still be forced to sell miners (alot of em) on that break in downrend should it occur, just to manage risk.  I do not believe that it will NOT take geo-political risk to change the value of the dollar, but rather just risk of equities deflating.

I would forget, as much as possible, or necessary, trying to value currencies against each other as a mearsurement of "true value".  The Euro being where it is against the dollar is merely a meaaurement of  the markets preception of growth in european equites and continued fear around the systemic risk still in play, with primarily Eastern European debt levels CURRENTLY relative to GDP.  Again fear based, not based on its intrinsic value.

[jjj000]

re: China buying commodities companies, or any other countries doing that for the same matter...

really though -- how many mining companies are there out there to buy???  Like someone said a while ago, how many billions would buy up the ENTIRE U mining industry??  Right now, maybe just a couple billion.  And looking at their performace... what a horrible investment that would be!!!  Hope the Chinese don't subscribe to the Dines Letter

So I don't think China would even be willing to dump a significant amount into mining companies even if they could... just for fear of losing all that money.  And remember, the more money you have the less risk you can take -- or rather the less you can mess around with smaller investments without blowing their values out of proportion.  The Buffett effect kind of a thing.

And how many of these companies are going to allow themselves to be bought outright by the Chinese?  None.  So... what they are going to do... eat up 25% of a thousand companies around the world?  Even if they do... that's chump change.  Dare I say ZERO net effect on their trillion dollar reserves balance.

Not even to mention competition with Japan or Russia or US or anyone else interested in a similar strategy... much less the big oil companies or even Cameco once they start their own buying sprees and start getting into more U companies, rare earths, etc.  If you were a mining company who would you rather sell to - China or Cameco or Chevron??

I could be totally wrong of course... but to me that whole China buying the world's commodities up idea just doesn't make sense.  Guaranteed contracts and investments in current or near-term producers, sure.  And that could certainly impact those resources' availability to other countries, including the US - fine.  But effect their investment in treasuries/US Dollar???  Not likely.

[Beginner]

But, here's the thing, if I may coin a cliche:  The US is already insolvent but no one is ready to admit that.  Everything is just moving in slow motion:   
 http://www.chrismartenson.com/crashcourse

Chris Martenson spells it all out very concisely in 20 videos.   

[onlooker]

Just these past couple of days, there has been news linking the future of the dollar - to the yen, gold and Special Drawing Rights (SDRs)

http://www.cnbc.com/id/15840232?video=1275511738&play=1

http://www.moneyandmarkets.com/dollar-crashes-against-yen-time-to-act-4-35600