Tuesday, December 16, 2008

Gold and the weakening dollar

Anybody else notice the weakness of the dollar versus the euro? From 1.25 to 1.37, and it took all of a couple weeks.

And it started with the backwardation of gold, where future prices were less than spot prices.

Which means there was so much mistrust in the system, that physical gold buyers would not relinquish there gold, and sell it at spot and buy it in the futures market at a lower price, for delivery in 30 days because they wanted to own what they had. What happen to the Central Banks that are always hitting these bids?

And now, apparently they don't trust the dollar either. And gold's backwardation signaled the directional change of the currency.

Now the oil producing nations, are seeing the price of oil go down, while the value of the currency it is priced in, goes down also. It couldn't happen to a nicer bunch!

Remember back on September 17 when gold ramped $88?

Why did gold and silver drop? There wasn't selling in ETF's.

It was massive selling in the futures markets by banks attempting to suppress prices.

It was a Central Banker's worst fear-real money!

Now that the backwardation story is over, the phony futures can trade on their own whims. But at least our Government is leading the race in devaluing the currency first! Which was signaled by the backwardation of gold, which signals mistrust.

So I suppose that's why gold is going up. Because it's money! But we see the tracks of those who didn't want that to happen.

So maybe it's time for these Central Bankers to try and game the gold and dollar market again before Ben cuts rates. It's time to make the natives believe in fiat money again!

In any event, in a few more hours we'll see how much the market trusts the gang from Goldman!

And maybe the market should learn a lesson from them. If you trade with a counterparty, trade with the one that trades opposite Goldman. Because if that counterparty has problems, our Government will be sure that Goldman gets paid. Just ask AIG!

Even if they have to lend them money at 1% over 1 month LIBOR and take $39.3 billion of worthless securities to do it!

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