A Golden Opportunity?
With last week’s gold prices plummeting and the trend continuing this week due to IMF’s news, we are taking a look at the markets and considering the opportunity to invest in gold.
Last week, a central bank (hushed, yet apparently Iceland’s) was forced to sell their gold reserves to stop an economic crash & burn meltdown of the country. (Many Icelandic banks being in serious trouble.) This forced selling of gold caused the prices to come down significantly. This event might be repeated with a domino effect, should other such cases occur and banks go down, especially in the stock markets, where troubled banks hold large investments.
A forced sell-off means a situation where property is dumped and sold at market price to cover debts. Usually, in such cases, there is not enough collateral, a panic ensumes and creditors are forced to mark down big losses. This is why stock markets are considered so risky at this time.
Due to the recent IMF estimates of $1 trillion USD’s worth of bad debt-doodoo yet to come out, that forms the hard core of the banking & credit crisis, we consider this an opportune time to stay away from the stock markets and consider moving into gold for the time being. All the while we waiting and eagerly looking for an opportunity, as many of the banks may go into forced selling. The stench is too big and not everyone can be saved, not without proper laxatives and flushing, that much is certain.
And again, this week IMF comments on their selling of their gold reserves caused a further down pressure on the gold market: “Tuesday the IMF laid out plans to re-organize finances, selling 400 tonnes of gold reserves to help cover a $400 million deficit in its $1 billion budget.” — A drop of $1 billion is not going to have effect on a problem of $1 trillion, and IMF’s own financial troubles are more than likely due to the corruption and insane salaries at such organizations.
Looking at the IMF behaviour in the long term, however, these claims to sell gold have no hold and are rather illogical. IMF has periodically given similar comments in the past, much to the same effect, yet has never come through on them. IMF decision to sell it’s gold reserves would require an approval from it’s 185 member countries, a process that would take roughly 2 years to complete and is practically impossible to achieve. The lip service it gives, however, caused a news torrent and a scare-effect on the markets, and worked just as desired. — Cooling down the looming crash of US dollar, as the gold prices went further down, scaring normal people and day traders away from investing in gold, as it looked to be too risky.
This is very likely the desired effect. Many central banks and countries are looking for an opportunity to move their reserves away from the risky dollar and diversify their holdings, as they work to preserve the value of the US dollar and stop it from declining. It is where they have their largest investments after all. Nonetheless, the decline is sure to continue as it’s main proponent, the US government, is unlikely to stop it from happening, considering their long stance on the Chinese Yuan and demands for it’s revaluation.
All these comments and moves are timed nicely to precede a weekend meeting of the central banks to work on the problem of the credit crisis and apparently looming crash of the US dollar. We note that many conservative analysts are expecting to see gold at $1,100 USD during this year alone, with some prognosing the value as high as $2,000 USD in the long term. An investment in gold with a change from $900 to $1,100 would bring a profit of 20% during this time alone, with no leverage applied.
The declining value of USD also works to the interests of USA in the current economic situation, as it creates demand for US manufactured products and improves the positions of companies operating in USA. This effect, however, won’t be showing anywhere near term, as US jobs are still being exported to China. The effect on the over 9 trillion dollars of US debt, however, is very beneficial. Most of the US debt is held in US dollars, a declining US dollar value means a de facto negative interest on this loan, and the losses are born by the borrowing countries anyway, mainly China and Japan. We also make a note of the talk that USA may in fact be moving away from the US dollar as a currency, and introduce it’s replacement the Amero. The currency for the rumored to be North American Union, consisting of USA, Mexico and Canada.
Considering the risky housing and stock market conditions, the further declining mining output of gold, the worsening position of the US dollar, the opportunity formed by the comments of the IMF and the recently enfolded forced selling crisis, we are taking the position to buy gold to secure our current assets, and set the target for selling it closer to Christmas time, hopefully somewhere near the $1,100 USD region, or, if and when the security of the stock markets has returned to normal, which may yet be a long time in coming.
Tags: amero, banking crisis, forced selling, gold, IMF, market crash, stocks
April 17th, 2008 at 2:22 am
HelloEvery other blog I have read about Stock Market Crash, has been lacking in information. Your insight into Stock Market Crash is sooooo much better than anything else I have read. Thanks Michelle