Friday December 13, 2002
Keep One Conspiratorial Eye on Gold
Treasury Secretary O’Neill, who once said he thought the current account deficit was ‘just a meaningless concept’, was somewhat effective at conveying what Rubin and Summers previously engrained into everyone’s mind: a strong dollar policy is in the best interests of the United States. However, since O’Neill was fired last week and John Snow took over his post on Monday, not a word has been said about the U.S. dollar.
Despite heightened geopolitical fears the weak action in the U.S. dollar is the main reason why the rally in gold has stuck. Incidentally, a strong case could be made that either Greenspan, Snow, or Friedman will soon assuage FX apprehensions, and give the markets some clue as to where they think dollar should be. However, it could also be the case that they will wait until the dollar is at a level that they consider to be ‘too low’ before they begin to offer some timely rhetoric. For certain, Finance Minister Masajuro Shiokawa and other Japanese officials, and although they seem to make blatantly obvious Yen announcements (‘Yen plunge’) on a monthly basis, try to gauge their rhetoric around key levels. That no U.S. counterpart has mentioned the dollar could be interpreted that such a key level has not yet been struck.
Another factor playing a role in gold’s resurgence is the constant trickle of news on the Iraqi front. On a daily basis it seems that a snippet of potentially ominous news crosses the wire, helping gold speculators to hold on. I use the term ‘hold on’ because right now gold is hovering at a 3-year high, and anyone who has watched the gold market knows that some ‘unknown force’ usually enters the markets right about now and begins slamming prices lower. That this has not happened yet relates to the fact that no concrete Iraqi, like concrete U.S. dollar developments, have come to pass. To be sure, whereas the financial markets generally do not like uncertainty, gold thrives on it.
Conspiracy Theorists, Once Again, Begin To Conspire
Many sources that cover the gold market, including ‘gold-eagle’, ‘GATA’, and ‘LeMetropole’, endeavor to correlate any price movement in gold to some potentially unbelievable news. Quite frankly, I have a difficult time believing that the motherload gold rally is upon us; that JP Morgan is preparing to default on their OTC derivative shorts, that the battle in Iraq will somehow trigger $50+ oil, or that the U.S. will begin throwing its nukes around. Rather, and thanks to the uncertainty surrounding the U.S. dollar policy, gold participants have not found a reason to sell, yet.
However, this is not to say that hard gold, as opposed to speculating in gold stocks, should not be apart of your portfolio. After all, the U.S. financial markets do face many challenges, and there can be no guarantee that the U.S. dollar will remain the safe haven currency of choice forever. To be sure, those commentators, investors, and goldbugs that are always yelling ‘gold $1000!’ are right about one thing: a gold rally itself, especially if it sustained, is potentially damaging news for financial markets.
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