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This time last week the price of gold was on the receiving end of a bone-jarring tumble from a lofty perch, north of 700.00 per ounce, while the price of silver was ambushed from $14.00+ to its current [at the time of writing] “low” 12.00 handle. This type of precipitous decline in the precious metals arena has become all too familiar. These knee jerk moves are explained by pundits of all stripes serving up everything from the “pabulum” of CNBC in the mainstream to “biting commentary” of contrarian’s cult figures like icons Marc Faber and Jim Puplava. There are also the gold bugs – they explain the gravity-defying miraculous moves in precious metals prices in terms of ill-doings or conspiracy on the part of monetary officialdom. Some claimed that last week’s drop in commodities prices made a genius of Marc Faber and his prediction that prices were due for a fall: Money
Manager Faber Predicts Commodities Drop Marc Faber, the money manager who told investors to bail out of American stocks a week before the 1987 Black Monday crash, said commodity prices may fall as much as 30% in three to six months. I concur with Marc Faber’s genius – however, if we examine his text more closely – he did mention that such an occurrence might take place over a period of three to six MONTHS, not three to six hours or days! Also, if one reads the complete article [subscription required] – they would also notice that in the same breath Mr. Faber predicted higher interest rates: "I'm a believer that interest rates in the U.S. are far too low," he said. Well folks, while the price of gold [and commodities in general] was plummeting last week – 10 yr. bond rates dropped twenty basis points. A paradox perhaps? There are many differing views on what makes markets tick [or TIC, take your pick?] since from the beginning of commerce and markets, men and women have made an industry of reading tea leaves, building econometric models or otherwise developing methodologies to explain why markets move; and most importantly, predict how they will move in the future. After all, who hasn’t dreamed of predicting the future or owning a crystal ball? Who’s The Greatest Of Them All? Regardless of one’s fundamental belief, the influence of China and India and the importance of energy and the petro-dollar trade are key in everyone's take on the situation: "This notion that the United States is getting ready to attack Iran is simply ridiculous...Having said that, all options are on the table." -- President George W. Bush, February 2005 Comprehending the importance of “reserve currency status” to the strength of the U.S. Dollar, one only need read Kassimir Petrov’s essay, The Proposed Iranian Oil Bourse. This paper clearly illustrates the importance of this fact. Does The Future Include A Dollar Fall? If deciphering the current picture isn’t challenging enough, it was announced today that Russia now plans to begin trading both gold and oil futures for rubles as of June 8, 2006 – on the RTS bourse [Russian Trading System]. RTS bourse to start trading oil, oil products, gold on June 8 MOSCOW, May 22 (RIA Novosti) - The Russian Trading System, Russia's premier stock market, announced Monday that it would start trading in gold, oil and oil products on June 8. The announcement comes in the wake of President Vladimir Putin's state of the nation address May 10, when he said Russia, as a leading oil exporting nation, should establish its own oil exchange to trade crude and petroleum products for rubles. ……….. While I’m going to admit that my crystal ball is a little bit cloudy at the best of times, the future for the U.S. Dollar has never seemed so dauntingly challenging. Today’s Market Overseas equity markets began the week on a sour note with Japan’s Nikkei Index losing 297 points to close at 15,857. North American markets also started the week off in the red with the DOW losing 18.73 to 11,125.33, the NASDAQ losing 21.02 to 2,172.86 and the S & P dropping 4.96 points to close at 1,262.07. NYMEX crude oil futures gained .70 to end the day at 69.27 per barrel. Interest rates eased across the curve by about 2 basis points with the 2-year bond ending the day at 4.94% and the 10-year at 5.03%. In foreign exchange markets, the U.S. Dollar Index fell .50 to 84.23. Precious metals ended the day mixed with COMEX gold futures adding .10 to finish the day at 657.90 and COMEX silver gained .04 to end the day at 12.56 per ounce. Meanwhile, the XAU lost 1.19 to 138.85 and the HUI fell 3.44 to 318.18. Wishing you all an exceptional evening and a pleasant and prosperous tomorrow! Rob Kirby |
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