Gold vs. Euro Trash - Friday 16th November 2007
Gold's sudden plunge doesn't change the outlook for the Dollar, nor for the Euro...
HOW ABOUT THAT Gold Market, eh?
Nature's currency, gold fell over $27 per ounce in New York trading on Thursday and is now back under $800 by a good margin. What gives?
It's worth underscoring the fundamental structural change in the currency markets. The US Dollar has fallen...and it cannot get back up. There will be rallies. But even if the Dollar rallies against the Euro, so what?
The Euro is also garbage. It's simply another currency not backed by anything tangible. It's risen by virtue of the fact that it is not the US Dollar. But it too, is simply an un-backed paper liability.
And it's not even backed by a real country!
The Euro is backed by 12 member nations whose various economic fortunes may one day force them to abandon the common currency in order to set interest rates that are more appropriate than those set in Brussels. Europe has a North-South divide.
But back to Gold Prices. In a world of paper money relativity, gold is a physical absolute. That is why people have been treating it as money for thousands of years. That alone makes it compelling. But as we've said many times here at The Daily Reckoning, the bear market in the US Dollar is a terminal bear market.
The US government will either have to greatly devalue the currency to pay off its debts, or it will default on those debts. Neither is good for confidence in the currency. In the meantime, things priced in Dollars (meaning commodities) will continue to go up as the supply of Dollars increases faster than the supply of tangible goods.
HOW ABOUT THAT Gold Market, eh?
Nature's currency, gold fell over $27 per ounce in New York trading on Thursday and is now back under $800 by a good margin. What gives?
It's worth underscoring the fundamental structural change in the currency markets. The US Dollar has fallen...and it cannot get back up. There will be rallies. But even if the Dollar rallies against the Euro, so what?
The Euro is also garbage. It's simply another currency not backed by anything tangible. It's risen by virtue of the fact that it is not the US Dollar. But it too, is simply an un-backed paper liability.
And it's not even backed by a real country!
The Euro is backed by 12 member nations whose various economic fortunes may one day force them to abandon the common currency in order to set interest rates that are more appropriate than those set in Brussels. Europe has a North-South divide.
But back to Gold Prices. In a world of paper money relativity, gold is a physical absolute. That is why people have been treating it as money for thousands of years. That alone makes it compelling. But as we've said many times here at The Daily Reckoning, the bear market in the US Dollar is a terminal bear market.
The US government will either have to greatly devalue the currency to pay off its debts, or it will default on those debts. Neither is good for confidence in the currency. In the meantime, things priced in Dollars (meaning commodities) will continue to go up as the supply of Dollars increases faster than the supply of tangible goods.
Dan Denning, 16 Nov '07
Formerly editor of Strategic Investment with Lord William Rees-Mogg, Dan Denning is an independent investment analyst now based in Melbourne, from where he edits the Australian edition of The Daily Reckoning. He is also author of the best-selling The Bull Hunter (Wiley & Sons).
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