The speculators have created huge buying positions of Gold Futures at the COMEX,
if only a third of them will ask for physical delivery of that Gold in December,
the COMEX Cold market will CRASH !
There is NOT enough Gold in the whole world answewr that physical demand,
therefore the speculkators are currentlky selling their December contracts,
which causes COMEX Gold to fall, BUT physical (spot) Gold is trading up
to $300 Higher (you read well).
When the Gold-buyers will ask for physical delivery of their Gold in December,
this will cause the COMEX Gold market to close and the Dollar to go to 1.60
and beyond against the Euro.
Here is the explanation as to why the collapse of the COMEX gold market would trigger
the collapse of the dollar:
For the last few years, the dollar has been in a bear market due to horrible fundamentals backing (the huge debt mountain, unfunded liabilities in the tens of trillions, rampant money printing by the central bank, and the huge federal budget deficit). However, in the last three months the US dollar has diverged from its fundamentals due to investors fears about deflation.
Because they see parrallel between today's credit crisis and the Great Depression, investors are pilling into the dollar and treasuries. Since the results of 1929's housing and credit collapse was an increase in the purchasing power of the dollar (deflation), investors now believe that purchasing power of dollars is also going to rise today. Based on this belief, investors are selling assets in other currencies and buying dollars, which is why foreign markets and currencies are crashing at the same time right now. These investors are then taking their dollars and plowing them into the "safest" investment, short term treasuries. Investors are willing to accept the near zero interest rate on these short term treasuries because they expect. Unfortunately for these investors, the purchasing power of the dollar is not going to increase.
In 1929, the dollar was protected by the gold standard. In contrast, today the dollar is not backed by physical gold but instead is controlled by the federal reserve. The current head of the fed, Ben Bernanke, believes that the great depression only ended when the US weakened the gold content of the dollar, devaluing the currency. Let me repeat that, the current head of fed, Bernenke, believes the solution to deflation is to devalue the dollar in order to keep prices from falling.
When COMEX collapses and gold prices explode, it will blow a hole in the whole deflation argument. If the purchasing power of the dollar is supposed to increase, why is gold skyrocketing? Investors will look back to what happened in1929 and discover that the dollar's purchasing power only increased back then because it was limited by the gold supply. In horror, they will realize that the true safe asset today, as it was back in 1929, is gold. It is this realization that will trigger the collapse of the dollar.
Without the expectation of deflation pushing thousand of panicking investors into dollars and US treasuries, the US dollar will revert back to its fundamentals, and these fundamentals have gotten MUCH WORSE in the last three months.
Maria
# posted by Generalfoundation @ 10:03 AM
