Tuesday, March 4, 2008

“Dollar: it will only get worse,” says CNNMoney.

This leaves the foreigners in a tight spot. They’ve got trillions worth of dollars...and the buck is falling. What are they going to do?

The answer is: what rising powers always do – buy gold. The price of the yellow metal has been in a bull market for nearly 10 years – a bull market that began almost precisely on the day, in 1999, when Gordon Brown sold English gold at a 20-year low in the gold price. Since 2001 gold has risen 240%. Since Sept. 18th, when Ben Bernanke his 5 rate cuts, it has dropped 36%. Like individuals, nations want to preserve their wealth; for the past decade gold has been the best way to do so; even central bankers are catching on.

Russia and Qatar are buying heavily. Qatar is using its oil revenues to buy a tonne of gold per month. Russia is buying three or four times as much, and now has more gold in stock than the Bank of England.

China is said to be buying too – but very cautiously. China has so many dollars, if it wanted, it could buy almost half of all the gold ever mined.

Looking ahead, it is hard to see what would stop gold now – except a worldwide financial meltdown. Some commentators insist that Western governments will sell their gold to take advantage of the high price. The IMF has already been cleared to sell nearly $100 million worth – to cover its budget shortfalls. But with the price rising...and the inflation pumps working round the clock...what central banker or treasury secretary is going to want to be the one who sells the family’s silver now?

Until tomorrow,

Bill Bonner
The Daily Reckoning

No comments: