Some talk of the end of the credit crunch. Some say that the gold
bull market has suffered severe damage, which will affect its long-term
prospects. If we were to accept these statements then it would appear
that the gold 'bull' market is over. But are these statements acceptable
and do they reflect the true picture underlying the gold [and silver] markets?
To get the proper perspective let's stand back
and look at the 'BIG' picture.
Is the Worst Over?
||Not according to the
I.M.F. An assessment by the International Monetary Fund says potential losses
as a result of the credit crisis could exceed US$1 trillion. The assessment
includes warnings that further losses and write-downs on prime mortgages,
commercial real estate, leveraged loans, and consumer finance were likely.
The IMF's Global Financial Stability report put credit market losses at
USD945bn, as of mid-March, with more losses expected for months to come.
|The report also stressed
the fact that the credit crisis was impacting the full spectrum of the financial
market in one way or another, with losses distributed between banks, insurance
companies, pension funds, hedge funds, and other investors. We note that
credit card finance alonside car finance has been included in assets acceptable
to the Fed as collateral, which tells us it is not over by a long shot.
a Trade deficit of $62.3 billion against a January deficit of $59.0. This
still looks like a $720 billion deficit to us and with oil prices now at
over $120 a barrel and Chinese imports still cheaper than local products
and flooding in, the prospects are for a worse annual Trade deficit than
ever before. And there is no real sign that this deficit is dropping.
||With OPEC talking
of a potential oil price of $200 a barrel
something has to be done to stop more than a decline in the $; a stop must
be put to the massive global scramble for resources by a combination of
the developed world and the emerging world, because prices will continue
to rise until they are so high that some will have to do without. This problem
is about the massive rises in demand with far greater ones to come.
So are there solutions in the pipeline? It seems that the only solutions
available to the authorities are existing market controls and proposed market
controls on all types of markets, but not on a globally coordinated front.
Unless there is global coordination such control will be completely inadequate.
Control of the
been published on the proposed actions by the Treasury department, the Fed
and the G-7. But they are actions that will attempt to place important
markets under the control of monetary authorities of the G-7. They
do not, however, include the interests of the emerging nations on important
The plan of Treasury Secretary Paulson to overhaul the financial system
included a crucial proposal: it would officially transform the Federal Reserve
into a "market stability regulator." The U.S. Treasury has indicated that
the Fed could use proposed new regulatory powers to stop, "credit and asset
market excesses from reaching the point where they threaten economic stability."
David Nason, assistant secretary for financial institutions, said the Fed
could even use its proposed "macro-prudential" authority to order banks,
hedge funds and other entities to curtail strategies that put financial
stability at risk.
Treasury wants to merge the Securities and Exchange Commission, the US markets
watchdog, with the Commodity Futures Trading Commission that is charged
with overseeing the activities of the nation's futures market. A conceptual
model for an "optimal" regulatory framework focused was being put forward
to achieve three objectives: market stability, safety and soundness with
government backing, and business conduct.
A working group was being established between Britain and the United States
to sketch out the best way to tackle financial market turmoil. The British
government said that it wants to work closer with the US and our other major
international partners in dealing with the global financial turbulence.
This is a global issue that requires a global response,
it said. While it appears the intentions are noble, they are without a doubt
ways and means to control markets as the Fed deems fit, inside the USA and
"The G-7 group of nations agreed to "calm markets showing irrational moves".
But this message did not have enough emphasis or was it ignored as a threat?
To reinforce the statement, Jean-Claude Juncker, Luxembourg's premier and
the chair of Europe's finance ministers, announced on April 23 "financial
markets and other actors [had not] correctly and entirely understood the
message of the [recent] G7 meeting." In other words, markets were put on
notice that the world authorities may [will and are?] take action to halt
the collapse of the US$ and undercut commodity speculation by hedge funds."
"French Finance Minister Christine Lagarde likened the recent G-7 stance
to the 1985 Plaza Accord when the industrialized nations agreed to "coordinated
intervention" to drive down the US$.
"Could this be a joint effort by the States and Europe to try to impose
a tight trading range on the €: $ movements in the future? We think it is
as the €: $ exchange rate moves of the last few weeks have shown [trading
between $1.54 and $1.59 against the €]. Much as Central Banks don't want
to 'intervene' in foreign exchange markets, it seems that they will do so.
Threats will be ignored until turned into action.
Gold Bull Market Updates...
"Now we have food
crises; governments in the emerging world are proposing other market controls.
The issue of food inflation has led some governments to contemplate provocative
strategies to lower food prices. India is reported to be considering a
ban on trading in food futures, a move designed to stifle what the Indian
government regard the speculative influence of hedge funds and financial
market traders in the recent surge in commodities prices. As food shortages
build up food protectionism is starting in some nations, curtailing exports
of food needed internally. This type of control has to become more widespread
as food prices hurt nation after nation going forward. With food as well
as resource prices running up dramatically action to restrain them will
have to be taken on a national basis, which we do not see being followed
through on an international front.
"It seems inevitable that more and more controls will have to be imposed
on more and more markets. It is inevitable that global movements of capital
will have to be retrained at national levels. The world just cannot afford
to have the huge wealth funds and trade surpluses running through constrained
exchange rates, spreading inflation through higher prices, until local capital
and trade markets demand drastic exchange controls. Attempts at intervening
in foreign exchange markets to contain exchange rates will attract the switching
of huge surpluses into currencies other than the US$. US-based funds can
be controlled for sure, but can Asian and Middle Eastern ones? History well
testifies that it takes the full impact of a crisis to give good political
cause to trigger draconian measures, such as Capital and Exchange Controls.
The Impact on Gold and Silver Prices
authorities may not be happy to see a resurgence of global demand for gold
and silver, those who are able to, will see these mounting controls as a
threat to the true measurement of value, which currencies have provided
since the last world war. As the dangers become more apparent, the $: €
exchange rate will not serve as a determinant of the gold and silver prices,
but the falling macro-confidence, fear of more instability, doubts about
the value of global currencies, both 'hard' and 'soft' and uncertainty on
a broad global front, will prompt a broadening of the type of global investors
attracted to these metals to reflect these fears over time, to ensure that
the gold and silver prices reflect global values and counter those measured
against controlled values [managed currencies] in other markets.
Certainly, the 'bull' market in gold and silver is far from over.
The market is metamorphosizing into a new phase promising far higher prices
than we even contemplate now.
What prices will gold and silver have then?
Gold Bull Market Updates...