The diminishing nature of some land-based mineral resources (the resource determines where you mine and whether you mine – not a nongovernmental organisation focus which is, in fact, a welcome interest) has increased the importance of marine mining and has reignited the interest of mining houses in this new frontier.

Although Southern Africa has a relatively long history of marine mining, the focus was mostly on land-based natural resources during the commodity boom as the emphasis was placed on large volumes when weighed against the cost of mining.

Read more….

By Kim Kyoungwha

Oct. 28 (Bloomberg) — Gold may rise to a record $2,000 an
ounce in the next three years as investors hedge against
“massive” inflation sparked by governments printing money,
according to Superfund Financial Singapore Pte’s Aaron Smith.

“In the next few years, after the deflation cycle, we’ll
see massive inflation,” Managing Director Smith, 30, said in an
interview. “Soon, when you go to buy a cup of coffee, you’ll
pay $20 or $30 because the dollar won’t be worth anything.”

The company’s Superfund Green Gold A Fund, which has more
than doubled since its inception in 2005, has lost 15.6 percent
this year because of higher volatility, said Smith, who joined
in 2002. Gold rose to an all-time high this month as governments
including the U.S. boosted debt to combat the global recession.

“When the U.S. dollar crashes, all the paper currencies
have to crash, otherwise if their currencies are too strong,
their economies will be weak,” said Smith, who issued similar
gold forecasts in May and earlier this month. “Another
excellent buying opportunity for investors is silver.”

Gold for immediate delivery, which touched a high of
$1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in
Singapore. The metal has strengthened 18 percent this year,
while the Dollar Index, a six-currency gauge of the dollar’s
strength, fell 6.4 percent.

Gold Forecasts

Smith joins investors including Shayne McGuire, director of
global research at the Teacher Retirement System of Texas, and
Jim Rogers in forecasting higher gold prices. Pension funds will
increase gold holdings as currencies decline, McGuire said on
Oct. 22. Gold will probably top $2,000 in the next decade as the
dollar weakens, Rogers said Oct. 7.

Superfund, founded in 1995 and backed by $1.6 billion in
assets, specializes in so-called managed futures, using its own
trading system to generate buy and sell calls on stock, bond,
currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24
percent this year, Smith said.

The ratio of silver to gold, currently at 62.35, will be
“cut in half” in the next three to five years as millions of
people in South Asia and China buy the metal as an alternative
because they can no longer afford gold, Smith said. Silver has
soared 46 percent this year to $16.65 an ounce.

Read more….

South African Finance Minister Pravin Gordon on Tuesday called on government departments for sectoral and financial coordination, saying that the country had to explore options for promoting the development of the mining industry.

The mining sector displayed the first signs of recovery in the country’s economy, which is its first recession since 1992, with production rising strongly in the six months to end August, benefitting from a recovery in commodity prices and rising iron-ore exports to China.

Read more….

The severe debt position faced by the world’s biggest mining companies will have an adverse impact on future supply growth and hence could lead to sharply higher commodity prices.

Read more….

The Daily Reckoning

The finance ministers of the Eurozone met yesterday and they’ve tried to stem the euro’s (EUR) rise… But they’ll need more than words to get the job done! And so we begin a new day…

Front and center this morning, the currencies – which had given background overnight to the dollar – are back in rally mode, and are taking liberties with the dollar once more. For most of the night, that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48 handle, after the single unit spent yesterday at 1.49 and change… There seemed to be a move to the dollar, but that didn’t last long, and the currencies are once again rallying versus the dollar this morning, and the euro has pushed to 1.4970 as I write.

Daily noise, eh? Yes, you have to wade through it most days, and keep your eyes fixed on the horizon…

OK, I mentioned above that the finance ministers of the Eurozone met yesterday, and tried to stem the dollar’s decline by backing the US administration’s stated preference for a strong dollar… Of course we all know that the US administration’s stated preference for a strong dollar is a bunch of horse dookie! So… What was it that the Eurozone FMs were backing? A false statement by the US? Now, that’s something to hang your hat on, eh? The dolts just continue to mount daily don’t they?

But, you can’t be too hard on the beaver (Eurozone FMs) for they have to sound like they don’t want their euro to get too strong, for if they really said what they wanted to say, the euro would be back to 1.60 with a bullet in a heartbeat! So… In the end, I don’t think currency traders were swayed by the Eurozone FMs, at least not for too long!

Yesterday, I talked about Canada and the Bank of Canada (BOC) and how I thought that the BOC would remove their statement about interest rates remaining on hold until the second half of 2010… I had a few readers question me on this, saying that Canada’s economy is in no shape to withstand a rate hike… OK… Hear me out on this… I’m not saying that the BOC will hike rates now, or even in 2009… But, if Canadian energy prices of oil, natural gas, and coal continue to get stronger, I’m afraid the BOC will have to entertain thoughts of raising rates to fight inflation… But not now… So… I hope you get what I’m saying here.

So… The US fiscal deficit for 2009 was $1.42 trillion… Remember how I used to take the previous administration to the woodshed for posting $450 billion fiscal deficits? How did we go from $450 billion to $1.42 trillion (if that’s really the number)? Well… That’s not a question to really answer, folks, we all know how we got here… But now that we’re here, what happens next?

I came across this when putting the two monthly newsletters together on Sunday; I think it would be appropriate to share it with you here…

Peter Bernholz (Professor Economics in Basel) studied the world’s 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz rounds some numbers, but for those of you keeping score at home, the real point is that the US deficits are greater than 40% of expenditures… And you know me, I truly believe in this history repeating itself.

The point I’m trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat’s meow! NOT!

So… Here we go again, with me getting on the soapbox and telling you that the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals.

OK… I get emails all the time from readers that say, “OK Chuck, you tell us to diversify, but you don’t tell us what to buy”… Well… To the untrained eye, that would be true… But to long time readers they know better… So, keep reading, and it will hit you right between the eyes one day, and you’ll slap your forehead and say, “I could have had a V-8”!

The boys and girls over at Citigroup have written a letter to their clients telling them “the dollar is weakening because foreign central banks are diversifying their reserves and US investors are buying high-yielding emerging market assets.” They went on to say, “The Australian and Canadian dollars are likely to rise to parity against the US currency.”

So, there’s one more on the roster that believe Aussie dollars (AUD) and loonies (CAD) will go to parity against the dollar… The loonie isn’t exactly the same stretch of a forecast as the Aussie dollar, as loonies are almost 97-cents right now, with Aussie dollars trading near 93-cents…

Doesn’t that make sense given the talk we just had about hyperinflation? What currencies are going to help protect you against hyperinflation? The commodity currencies! Aussie, kiwi (NZD), Canada, Norway (NOK), Brazil (BRL) and you can even throw in the S. African rand (ZAR), for those who like Mr. Toad’s wild ride!

The folks at Citigroup also had this to say about the euro, which I found to be quite interesting… “The euro will extend gains against the US dollar and the British pound, and may reach parity against the UK currency in 6 to 12 months.”

I would think that for the euro to reach parity with the pound, it would involve the pound falling quite a bit from current levels… And that makes sense to me… Did you see the report the other day from the UK where they reported bad bank debt to be twice the forecast amount? YIKES!

You know… The Asian currencies – which never really participated in the first bout of dollar weakness – are still stuck in the mud… Well, they are being manipulated to be stuck in the mud, for the most part… But, something’s got to give here sooner or later. Why do I say that? Well, as I’ve told you for months now, the Chinese economy was the first to exit their slowdown/recession… Shoot Rudy, even Japan is showing signs of economic growth! And then we have India going strong too… And of course you have the “kind of Asian countries” of Australia and New Zealand… Where we already know that Australia has raised rates and New Zealand would love to raise rates… So, this region is leading the world out of the recession… Hmmm… I thought only the US economy was allowed to do that! Uh-Oh… Looks like we have a shift in how the world works!

Hey! Even Big Ben Bernanke sees the Asian countries as leading the world out of the global recession! Big Ben said… “Asia appears to be leading the global economic recovery.” Hmmm… See, even a blind squirrel can find an acorn! HA!

I had to laugh when I read this headline this morning… “Yen rises as Fujii repeats reluctance to stem currency’s rise”… I laugh because the last time Japan’s new finance minister talked about not intervening to stop the yen’s rise, he back-pedaled and said that traders mistook him to say that he was not going to intervene… So this on again/off again love affair with Fujii and intervention, just makes me laugh! I would think that after getting burned on Fujii comments a couple of weeks ago, that Traders would not get too lathered up when he talks about not intervening.

OK… Here in the US while we are still a sovereign nation, the Fed Reserve, is doing some testing of reverse repos as a means of drawing the excess liquidity/stimulus out of the markets… I don’t think we have to put too much into these tests right now. But it will be a method that the Fed uses at some point in the future… The IMF is against removing any stimulus now… So, that may carry some weight.

Gold prices rose yesterday for the first time in a couple of days, pushing back above $1,060… I would think that until we know for sure that the Fed is removing stimulus, that gold would remain well bid… When we do know that stimulus is being removed… Gold might take a step or two back… But then we’ll have to wait-n-see what happens with inflation.

I read where ETF holdings of gold are sluggish… Well, that certainly makes sense to me! With what we’re seeing these days from our government pushing us toward who-knows-what, physical gold is the thing people want right now… And you can’t get physical gold out of an ETF! So… All those people that have long said that the ETF was just as good as holding gold either in your buried coffee cans in the back yard, or in pooled accounts, are wrong, when it comes to physical gold demands.

And I don’t know about you, but I filled my gas tank the other day, and the price of gas has really shot up recently, eh? And a quick look at oil prices tells it all… Oil prices have risen to $79, while trading at $69 just a month ago! Is oil the proxy for rising inflation?

OK… To recap… The dollar rebounded a bit overnight, but has given back to a currency rally this morning. Citigroup believes Aussie and Canadian dollars will reach parity to the US dollar. The Bank of Canada meets today. Our fiscal deficit reached 40% of our expenditures, which historically is a harbinger to hyperinflation, and gold is back above $1,060 this morning…

US Hyperinflation? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets.

More articles from The Daily Reckoning….

By Pham-Duy Nguyen

Oct. 19 (Bloomberg) — Gold’s rally to a record means
prices are still 53 percent below the 1980 inflation-adjusted
peak.

While gold rose 19 percent this year to $1,072 an ounce on
Oct. 14, consumer prices almost tripled in the past three
decades, eroding the metal’s value. Bullion hasn’t kept pace
with the cost of bread, fuel or medical care. In 1980, gold hit
a then-record $873 an ounce. In today’s dollars, that would be
$2,287, according to the U.S. Labor Department’s inflation
calculator.

Record government debt and interest rates close to zero
percent are pushing gold higher for a ninth straight year, and
options show investors expect the rally to continue. When prices
reached all-time highs, the contract with the most open interest
was the December call to buy the metal at $1,200. The contract
to purchase at $1,500 an ounce was the third biggest.

“Gold is not at any peak,” said Martin Murenbeeld, the
chief economist at Toronto-based DundeeWealth Inc., which
manages $58.5 billion in mutual funds and brokerage accounts.
“The world’s money supply has increased and gold hasn’t kept
pace,” he said. “We’re now in a period where gold is catching
up.”

The U.S. Dollar Index, which measures the currency against
those of six major trading partners, fell on Oct. 15 to the
lowest level in 14 months, and has dropped about 7 percent this
year. President Barack Obama has increased the nation’s
marketable debt 22 percent to $7.01 trillion to revive growth.

Preserving Value

Gold bulls say today’s record borrowing and low interest
rates mean the government will have to accept faster inflation
as the economy recovers. Investors buy bullion to preserve value
during times of turmoil and economic stress.

Financial institutions worldwide have reported credit
losses and writedowns of about $1.62 trillion since the start of
2007, when the credit crisis began. Group of 20 governments have
pledged about $11.9 trillion to ease credit and revive economic
growth, according to the International Monetary Fund.

“Gold is the hedge against currency devaluation,” John
Brynjolfsson, of hedge fund Armored Wolf LLC, said in a
Bloomberg Television interview from Aliso Viejo, California, on
Oct. 7. He predicted bullion will top $2,000.

Banks have raised their gold estimates. On Oct. 9, JPMorgan
Chase & Co. said the metal will average $1,006 an ounce next
year, compared with an earlier projection of $950. Deutsche Bank
AG forecast an average of $1,150, up 32 percent from its
estimate in July. Barclays Capital said Oct. 12 that “prospects
for a run at $1,500 should not be underestimated” next year.

Understated CPI

Gold would need to rise more than sixfold to top the 1980
record, using a more accurate inflation-adjustment, said John
Williams, an economist and the editor of Berkeley, California-
based Shadowstats.com. He said the government has understated
the cost of living over the past two decades with adjustments in
the way it measures the basket of goods and services monitored
by the U.S. consumer price index, or CPI.

Gold futures for December delivery closed Oct. 16 at
$1,051.50 an ounce on the New York Mercantile Exchange’s Comex
division, gaining for a third straight week.

“If the methodologies of measuring inflation in 1980 had
been kept intact, gold would have to hit $7,150 to be the
equivalent of the 1980 record,” Williams said.

The cost of living in the U.S. rose 0.2 percent last month,
the Labor Department said on Oct. 16. Compared with a year
earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5
percent this year, before rising 1.9 percent in 2010, reflected
by the median estimates of 61 economists in a Bloomberg survey.
Annual increases averaged 2.8 percent a year in the past decade.

Purchasing-Power Adjustment

In March 1980, inflation surged to a 14.8 percent annual
rate, two months after gold capped a four-year rally. Adjusted
for the decline in the dollar’s purchasing power since then,
gold’s Oct. 14 record of $1,072 represents the equivalent of
$409 in 1980 dollars, the Labor Department calculator shows.

Since January 1980, the average price of a pound of white
bread has risen almost threefold, from about 50 cents to $1.38
in August, and medical care has surged more than fivefold, Labor
Department figures show. Gasoline and electricity prices have
more than doubled.

Today, the gap between gold’s spot price and its CPI-
adjusted equivalent is the widest ever.

Gold hasn’t been as effective a hedge against inflation as
oil since the 1980s, said Matt Zeman, of LaSalle Futures Group
LLC in Chicago.

Oil Beats Gold

Crude passed its 1981 inflation-adjusted record two years
ago. The cost of imported oil averaged $39 a barrel in February
1981, after Iran cut exports, according to the Energy
Department. That’s $89 in 2007 dollars, the Labor Department
calculator shows. Oil reached a record $147.27 on July 11, 2008,
and closed at $78.53 on Oct. 16 in New York trading.

“If you bought gold in the 1980s, you’re still losing
money today,” said Zeman, a metals trader. Gold prices in New
York languished for two decades after declining from the 1980
record, dropping to a 20-year low of $253.20 on July 20, 1999.

While bulls say gold is cheap, the inflation-adjusted price
is 15 percent above its 30-year average, Bloomberg data show.

The Federal Reserve may limit gains by raising interest
rates before inflation balloons, analysts said. Fed Chairman Ben
S. Bernanke said on Oct. 8 that policy makers will need to raise
interest rates “at some point” to control inflation.

‘Prepared to Tighten’

“When the economic outlook has improved sufficiently, we
will be prepared to tighten,” Bernanke said in remarks prepared
for an Oct. 8 conference in Washington.

Fed moves to cool inflation and the government’s revenue
needs will stop gold, according to Jon Nadler, a senior analyst
for Montreal metals dealer and refiner Kitco Inc.

“These wild calls for several-thousand-dollar gold are
typical of times when gold goes into uncharted territory,”
Nadler said. “The Fed will pull the interest-rate trigger and
the Obama administration will, in addition, pull the tax-hike
trigger before we get into any serious inflation. Once the man
on the street gets in, the gold rally is likely over.”

Gold held in exchange-traded funds climbed to records this
month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings
in the SPDR Gold Trust, the biggest exchange-traded fund backed
by bullion, are up 42 percent this year. Hedge funds and other
large speculators hold their most-bullish position ever in gold
futures. So-called net-long positions, or bets prices will rise,
increased by 6 percent to 253,955 contracts in the week ended
Oct. 13, according to the Commodity Futures Trading Commission.

Gold Producers

The Philadelphia Stock Exchange Gold & Silver Index jumped
43 percent this year, as Phoenix-based Freeport-McMoRan Copper &
Gold Inc. tripled. Toronto-based Barrick Gold Corp., the world’s
largest producer, fell 10 percent. Barrick said Sept. 8 it will
record $5.6 billion in third-quarter costs to eliminate fixed-
price contracts as the company bets gold’s value will climb.

At Jersey, Channel Islands-based GoldMoney.com, which held
$759 million of gold and silver for investors as of Sept. 30,
founder James Turk said bullion can climb eightfold based on the
historical relationship between the metal and the Dow Jones
Industrial Average. The Dow is up 10-fold since January 1980.

Gold and the Dow, which has gained 14 percent this year to
9,995.91, were at about the same level during the Great
Depression and the early 1980s, he said. On Jan. 21, 1980, as
gold futures surged to $873, the Dow slipped to 946.25.

“The dollar is constantly being debased and inflated,”
Turk said. “By 2013, gold is going to be at $8,000 and the Dow
will be at 8,000.”

Gold-Dollar Link

Deutsche Bank said early this month that the dollar will
fall to $1.60 per euro next year, a drop of 7.3 percent from
last week, because of “rising fiscal deficits and loose
monetary policy.”

Gold has moved in the opposite direction of the dollar over
most of the past decade. The metal’s correlation coefficient to
the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A
correlation of minus 1 indicates two assets move inversely to
each other, while a 1 would show they move in tandem. A reading
of zero shows no correlation.

Philip Gotthelf, the president of Equidex Brokerage Group
Inc. in Closter, New Jersey, says he expects gold to trade at
$1,250 by year-end.

“Gold has been pushing higher because it’s no longer just
a hedge against commodity inflation, it’s also a hedge against a
change in world-monetary standards.”

Read more….

Gold hit another record high this week, as the yellow metal moved above $1,070.00 per ounce. “There’s lots of concern about the weakness of the dollar, and this had been driving gold,” said Peter Fertig, owner of Quantitative Commodity Research to the financial website Bloomberg.com. “The fear that central bank exit strategies will come too late to prevent inflation is also giving support to gold.”

As the U.S. Dollar continues to slide, gold may continue its climb to even higher prices. Talks of foreign countries replacing the dollar as the world’s reserve currency were still present in the marketplace this week. China, among others, is considering how to diversify its foreign exchange reserves which lends merit to the continued weakening of the U.S. Dollar. For example, the Dollar Index, a measure against six major currencies, fell about 14% since March, while gold rose about 13% during that same period.

The U.S. Commerce Department released reports this week saying that U.S. business inventories fell by 1.5% in August. This represented the largest drop in the 17 years that the data has been collected. The decline was also the 12th in a row and is an indicator that businesses are still cutting back to deal with weak consumer demand.

APMEX is proud to announce that we have been selected by the Austrian Mint as one of the exclusive distributors of the very limited edition 20-ounce Gold Philharmonic Coin. This coin has an extremely low mintage of only 6,027 coins, of which only 2,009 will be available for sale in the United States. APMEX has these beautiful coins in stock and ready to ship. Enjoy your weekend and thank you for choosing APMEX for all of your precious metal needs.

Gold:
Spot Gold prices opened this week at $1,051.80. The high during the week was on Wednesday, October 14th at $1,070.50, while the low for the week was on Friday, October 16th at $1,042.20. Gold ended the week with a gain of $2.80 at $1,054.60. This week, 2009 1 oz. Gold American Eagles, 2009 1 oz. Gold Buffalo Coins and 1 gram APMEX Gold Bars were some of the most popular items that investors purchased.

Silver:
Spot Silver prices opened this week at $17.79. Silver reached a high of $18.06 on Wednesday, October 14th. The low for silver occurred on Friday, October 16th at $17.18. Silver ended the week down slightly at $17.50. This week 2009 1 oz. Silver American Eagles, 2010 1 oz. Canadian Silver Maple Leafs and APMEX .999 Fine 1 oz. Silver Bars were quick sellers on the APMEX website.

Platinum:
Spot Platinum prices opened this week at $1,344.80, and ended the week up $5.90 at $1,350.70. The most popular platinum products for this week included 1 oz. Pamp Suisse Platinum Bars, 2009 1 oz. Platinum Canadian Maple Leafs and 2009 1 oz. Platinum American Eagles.

Palladium:
Spot Palladium prices opened this week at $322.00, and ended the week up $8.90 at $330.90. 2009 1 oz. Palladium Maple Leafs, 1 oz. Pamp Suisse Palladium Bars and 10 oz. Pamp Suisse Palladium Bars sold quickly on APMEX.com.

Numismatics:
The spot price of Silver has certainly made its impact felt here at APMEX. Peace Silver Dollars grading from Very Good to Extra Fine have been giving Cull Silver Dollars a run for their money as APMEX’s leading choice among investors and collectors. These coins were minted between 1921 and 1935 and they contain .77344 ounces of pure silver. They are an excellent way of positioning your portfolio or collection in silver. Morgan Silver Dollars that grade Extra Fine also continue to arouse investors as silver maintains its slow but steady rise. The smart investors are continuing to add these Silver Dollars to their portfolio on a regular basis.

As we continue our series on Silver Dollars we will be getting into more of a collector’s state of mind – by discussing VAM’s. What is a VAM? A VAM is a specific die variety of silver dollar as defined by Leroy Van Allen and A. George Mallis. Many of these varieties are very highly collectible. In fact, there are Silver Dollar collectors that only collect VAM’s. There is a case to be made that every Morgan Silver Dollar is a VAM, however, there are only a few dozen varieties that are popular and worth considerable sums of money.

Ironically, the more interesting sounding names such as Scarface, Alligator Eye, Spitting Eagle, and Hot Lips, are the more sought after varieties, regardless of their rarity. As there were hundreds of thousands to millions minted, there can be multiple VAM’s for the same date and mint mark. Both the Scarface and Hot Lips varieties can only be found on the 1888-O. Because of the cost involved in collecting and attributing VAM’s, many are graded by a third party grading service. But there are many specialists in the hobby that can easily decipher one VAM from another. APMEX has its very own VAM specialist and has a wide variety of VAM silver dollars in both certified and uncertified states. Click here to view our complete list of VAM varieties!

Discount gold bullion may initially sound like a correction in terms to many inexperienced household investors, but the truth is that gold bullion is not unlike any other commodity. Since gold is such a costly item, many of us don’t realize that the more gold bullion that is purchased in a single transaction, the closer it brings the bullion price to the current spot price, which is the cost of a Troy ounce of pure gold. Bullion prices are normally just a bit higher than the current spot price, but local gold dealers are forced to drastically mark up their retail prices to cover their own overhead expenses.

Conversely, large-volume precious metal exchanges make huge gold bullion transactions to supply financial institutions like banks, corporations, and insurance companies with their gold. These exchanges receive what are called “institutional discounts” on their transactions, and the surplus gold bullion from these discounted transactions is available to household investors at the same institutional rate.

Household investors are advised to avoid local gold dealers, and to research the background of a reputable, large-volume gold exchange to assure a safe discount gold bullion transaction. Better Business Bureau recommendations are optimal, so investors can confidently make purchases in bullion bars like Johnson Matthey, or PAMP Suisse, or globally popular bullion coins like 22-Karat, $50, modern American Eagles, which contain a full Troy ounce of pure gold. Investors are encouraged to complete their research, and then to contact one of our friendly specialists, who offer institutional discounts on bullion bars and coins.

Danny Burns

Read more….

What’s happening to the dollar? That’s the question dominating the world’s
financial markets. Last week the US currency fell, on a trade-weighted
basis, to a fresh 14-month low. The dollar’s decline is now gaining momentum.

By Liam Halligan

Published: 7:22PM BST 10 Oct 2009

Many American economists say the greenback is falling because the global
economy is recovering – so investors no longer need the dollar as a “safe
haven”.

That’s nonsense. The reality is that “safe haven” status has shifted
away from the dollar and towards tangible assets that the US government
can’t debauch by printing more of them. That’s why gold just hit a fresh all-time high of well over $1,000 per ounce.
That’s why commodity-backed currencies like the Australian dollar are now
soaring – causing howls of protest from Aussie exporters. Meanwhile, global
investors are quitting the US currency because they’re worried it’s a
sinking ship.

It’s hard to disagree. America is still running a current account deficit
equal to almost 3pc of national income. In a single month over the summer,
the gap between America’s imports and exports widened no less than 16pc.

America’s external imbalance remains sizeable in part because the country is
the world’s biggest oil importer. When crude prices rise, Uncle Sam’s trade
deficit increases, which, in turn, pushes down on the dollar.

As every financial analyst knows, a falling dollar means rising oil as the
black stuff is priced in US currency. But the relationship also operates in
reverse. When oil strengthens, the dollar tends to weaken as America’s trade
deficit suffers. Crude is now more than 50pc above its mid-February low –
ergo, a weaker dollar.

The dollar is also falling because that’s what the White House wants. “It’s
important America continues to have a strong currency,” said US
Treasury Secretary Timothy Geithner last week. “We’ve made clear our
commitment to a strong dollar,” added Larry Summers, the Head of
President Obama’s National Economic Council.

These men insult our intelligence. The US government desperately wants a
weaker dollar – so boosting exports while lowering the value of America’s
massive foreign debt. The currency markets will keep betting against the
greenback as they know the Federal Reserve will do nothing to stop a weaker
dollar coming true. “Benign currency neglect” is the cornerstone
of Obama’s recovery strategy.

The danger is, though, that “the rope slips” and steady decline
turns into nosedive. If the dollar did tip into free fall, US inflation
would soar and interest rates would skyrocket – whatever the Fed now says.
The world’s largest economy would then face “stagflation” – the
nightmare combination of recession and high inflation.

This danger is very real, not least because the rest of the world is seriously
concerned at America’s wildly expansionary fiscal and monetary policy.
That’s the fundamental reason the dollar is falling.

Just over a year ago, America’s monetary base was equal to 6pc of national
income. Now, after a year of money printing, it’s 12pc. The US has expanded
its basic money supply by a staggering 108pc in 12 months. No wonder the
currency markets are alarmed about future US inflation. No wonder there is a
widespread assumption so-called “quantitative easing” – or QE –
will continue, funding yet more bank bailouts and other forms of wasteful
government spending.

On top of all this, we must now add “carry trade” pressures. As this
column pointed out last month, investors are using low Fed rates to take out
inexpensive dollar loans, then converting the money into higher-yielding
currencies. “Carrying” credit in this way is flooding the world
with cheap dollars – pushing the greenback down even more.

There are broader reasons for the dollar’s demise – not least that the sun is
now setting on its reserve currency status, as the world’s commercial centre
of gravity shifts towards the emerging giants of the East. That’s a much
longer-term trend, though. In the here and now, the dollar is tumbling due
to America’s ultra-low interest rates, monetary incontinence and fiscal
irresponsibility.

The decline became so steep last week that central banks in Asia – including
China – spent their own reserves propping up the US currency, so worried
were they about the impact of the falling dollar on their all-important
exports. Future historians will shake their heads in disbelief.

Keep in mind, though, that the arguments pointing to a weaker dollar also
apply to the pound – but even more so. Last week sterling hit a
trade-weighted five-month low. Over the last year, the pound has, well, been
pounded – losing significant ground against the yen and euro, as well as the
ailing dollar.

Like the US, Britain has indulged in grotesque money-printing antics. The two
countries might be dubbed the QE2. But the Bank of England’s printing
presses really have been in overdrive, with the UK’s monetary base now equal
to almost a fifth of GDP, up a head-spinning 169pc in a single year.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA
gold

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By Pham-Duy Nguyen and Nicholas Larkin

Oct. 13 (Bloomberg) — Gold futures rose to a record as the
slumping dollar spurred demand for the precious metal as an
alternative asset.

The metal is on course for a ninth straight annual gain.
This year, gold has gained 20 percent. Today, the price reached
a record $1,069.70 an ounce in New York, surpassing the previous
high on Oct. 8. The dollar has dropped 6.6 percent in 2009
against a basket of six major currencies, touching a 14-month
low.

“There’s lots of concern about the weakness in the dollar,
and this has been driving gold,” said Peter Fertig, the owner
of Quantitative Commodity Research Ltd. in Hainburg, Germany.

Gold futures for December delivery gained $3.50, or 0.3
percent, to $1,061 at 11:05 a.m. on the Comex division of the
New York Mercantile Exchange.

The metal may benefit as central banks worldwide diversify
away from the dollar, analysts said. Nations reporting currency
holdings put 63 percent of the new cash into euros and yen in
April, May and June, Barclays Capital data show. China in April
said it purchased 454 metric tons of gold from 2003 to 2009,
according to data from the producer-funded World Gold Council.

China has the sixth-largest gold holdings, after the U.S.,
Germany, the International Monetary Fund, Italy and France. Only
1.9 percent of China’s foreign-currency reserves are in gold.

“The tremendous perception that the dollar will continue
to weaken is going to drive gold higher,” said Frank McGhee,
the head dealer at Integrated Brokerage Services LLC in Chicago.
“China is nervous and continues to be nervous about the
dollar.”

Record U.S. Debt

President Barack Obama has increased U.S. marketable debt
to a record as he borrows to reignite economic growth. That has
boosted speculation that increased money supply will debase the
currency and spur inflation.

The Federal Reserve has cut its main interest rate almost
to zero and backed asset purchases and credit programs to combat
the recession. Chairman Ben S. Bernanke is leading plans to buy
mortgage-backed securities, federal agency debt and Treasuries.

“The fear that central bank exit strategies will come too
late to prevent inflation is giving support to gold,” Fertig of
Quantitative Commodity Research said.

U.S. consumer prices will increase 1 percent this quarter
and 1.9 percent and 1.8 percent in the following two quarters,
respectively, according to the median estimate of 66 economists
surveyed by Bloomberg.

Crude-oil futures, used by some investors as an inflation
guide, rose today to the highest in seven weeks. The price has
jumped 65 percent this year.

Gold will trade at $1,025 an ounce in the next three
months, up from a previous forecast of $950, Citigroup Inc. said
in a report, citing increased demand and the sliding dollar. The
bank raised its estimate for the coming six to 12 months to
$1,050, from $975.

“There is less obvious support for the current price from
the fundamentals of supply and demand, excluding investment,”
Citigroup said. “Mine supply has recently been sufficient to
meet all fabrication demand. Excess demand for gold must
therefore be supported by investors.”

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