G-khan
05-08-2003, 03:10 PM
Gold is rising sharply in international markets this morning following the European central bank's decision no to raise intererest rates. That decision, though it is sure to have a dramatic effect in the short term, is more important to gold investors for what it reveals about the long term. If you go back and look at the drama that was the 1970s, you will note a phenomena which not only has historical import but one which has practical application today. Gold did not rise alone. The yen, deutsch mark and a half-dozen other key currencies rose with it -- and rose dramatically over a number of years. What they all -- including gold -- had in common is that they were rising against the dollar. The ECB's accomplishment -- and I use that word "accomplishment" deliberately -- comes at a time of increasing, not decreasing, tensions across the board in the transatlantic relationship including rising trade sanctions, a fracturing political framework, and tightly drawn tensions over a unipolar (read US dominated), as opposed to multipolar (read US/EU dominated) approach to the third world.
So why did the ECB do it? Why did they seem to come down on the side of a weaker dollar and send gold catapulting through the $345 glass ceiling, at a time one would have guessed they would be more accomodative? They did it because it is their turn. It is the yen's turn as well. They also did it to send a message -- one the gold market read instinctively as very bullish.
As the world has become more universal (at least in a trade sense),and as we have moved from the auto-functioning that various manifestations of the gold standard afforded us, the nations of the world have had to learn to cooperate on some level as a matter of mutual survival. Thus the nations of the world have taken turns at the plate in the interest of ebb and flow -- cyclicality, if you will. In other words, as the socialist economies of the world -- and the U.S. is one of them (despite the protestations to the contrary likely to emanate from a conservative administration like the current one) -- have discovered that though they would like to substitute the onslaught of nature through government planning, they cannot do it economically without creating a semblance of it, if not by outright agreement, then by a wink, and a nod -- an "artificial" policy meant to mimic what Nature would have done given the opportunity. All of this variously falls under the G8's rubric of "policy coordination." Whether this was done intellectually or intuitively, by policy or accident, matters not: It is being done, and "it" is what we need to react to. The quote from Horace prominent at the left speaks to the same issue wisely and concisely: "You may drive out Nature with a pitchfork, yet she still will hurry back."
Above, I use the word "accomplishment" with reference to the ECB rate cut. It is an accomplishment because the ECB left rates where they were under heavy pressure from exporting manufacturers. In other words for the sake of the international economy in the long run, exporters like Volkswagen, for example, (which today blamed the strong euro for the blow delivered its bottom line) will take the gas for awhile, just as American auto manufacturers took the gas during most of the 1990s (despite heavy protestations logged with administrations of both political parties.) In so many words, the ECB told Volkswagen (and others): "Live with it."
In this morning's Financial Times , an article under the heading "Fed's Change of Focus Shifts Onus on to the Eurozone" Alan Beattie, that newspaper's astute US based reporter framed the scene this way:
". . .[T]he Fed's new orientation could have implications beyond the US economy. If it helps to undercut an already soggy dollar, its actions will shift the onus on to the euro-zone to become the global consumer of last resort. And while many economists have been hoping for a rebalancing of the world economy for years, a question remains whether the eurozone is ready for the role the currency markets are inviting it to take up."
In that regard, the ECB's rate decision is a step in the right direction. Ebb and flow. You're turn. My turn. What cannot be accomplished by Bush, Blair, Chirac, Shroeder, et al will like be accomplished by Alan Greenspan and Wim Duisenberg -- two ivory tower econo-banker types who would run from the word 'politics' the way you or I would flee a disturbed hornet's nest. I recall the book written years ago titled along the lines "Everything I Needed to Know I Learned in Kindergarten." If I recall correctly, "taking turns" was one of its admonitions. So, it is now the United State's turn to rebuild its productive sector. And Europe and Japan's turn to become consumer. If it doesn't happen, we do not hold out much hope for the world economy. And this perhaps at the end of the day is what Greenspan and Duisenberg can accomplish that the squabbling political sector cannot. Without the unspoken co-operation, we could get that collapse that seems to be the center of so-many concerns both in and out of government and, a concern certainly prominent these days in the financial hierarchy.
If the policy is not "enlightened" (as some will argue in the weeks ahead as this all sinks in), it is at least pragmatic -- and from that it will derive its staying power. What this fait d' accompli does for gold and gold owners can be seen in the rear view mirror -- about 30 years ago -- in far away time and place called the 1970s. The chart shown below certainly hints at something in the air, and a market building toward what could be a major breakout. Today could very well be the opening volley signalling a major move to the upside.
http://www.usagold.com/AMK/MK-gold.html
So why did the ECB do it? Why did they seem to come down on the side of a weaker dollar and send gold catapulting through the $345 glass ceiling, at a time one would have guessed they would be more accomodative? They did it because it is their turn. It is the yen's turn as well. They also did it to send a message -- one the gold market read instinctively as very bullish.
As the world has become more universal (at least in a trade sense),and as we have moved from the auto-functioning that various manifestations of the gold standard afforded us, the nations of the world have had to learn to cooperate on some level as a matter of mutual survival. Thus the nations of the world have taken turns at the plate in the interest of ebb and flow -- cyclicality, if you will. In other words, as the socialist economies of the world -- and the U.S. is one of them (despite the protestations to the contrary likely to emanate from a conservative administration like the current one) -- have discovered that though they would like to substitute the onslaught of nature through government planning, they cannot do it economically without creating a semblance of it, if not by outright agreement, then by a wink, and a nod -- an "artificial" policy meant to mimic what Nature would have done given the opportunity. All of this variously falls under the G8's rubric of "policy coordination." Whether this was done intellectually or intuitively, by policy or accident, matters not: It is being done, and "it" is what we need to react to. The quote from Horace prominent at the left speaks to the same issue wisely and concisely: "You may drive out Nature with a pitchfork, yet she still will hurry back."
Above, I use the word "accomplishment" with reference to the ECB rate cut. It is an accomplishment because the ECB left rates where they were under heavy pressure from exporting manufacturers. In other words for the sake of the international economy in the long run, exporters like Volkswagen, for example, (which today blamed the strong euro for the blow delivered its bottom line) will take the gas for awhile, just as American auto manufacturers took the gas during most of the 1990s (despite heavy protestations logged with administrations of both political parties.) In so many words, the ECB told Volkswagen (and others): "Live with it."
In this morning's Financial Times , an article under the heading "Fed's Change of Focus Shifts Onus on to the Eurozone" Alan Beattie, that newspaper's astute US based reporter framed the scene this way:
". . .[T]he Fed's new orientation could have implications beyond the US economy. If it helps to undercut an already soggy dollar, its actions will shift the onus on to the euro-zone to become the global consumer of last resort. And while many economists have been hoping for a rebalancing of the world economy for years, a question remains whether the eurozone is ready for the role the currency markets are inviting it to take up."
In that regard, the ECB's rate decision is a step in the right direction. Ebb and flow. You're turn. My turn. What cannot be accomplished by Bush, Blair, Chirac, Shroeder, et al will like be accomplished by Alan Greenspan and Wim Duisenberg -- two ivory tower econo-banker types who would run from the word 'politics' the way you or I would flee a disturbed hornet's nest. I recall the book written years ago titled along the lines "Everything I Needed to Know I Learned in Kindergarten." If I recall correctly, "taking turns" was one of its admonitions. So, it is now the United State's turn to rebuild its productive sector. And Europe and Japan's turn to become consumer. If it doesn't happen, we do not hold out much hope for the world economy. And this perhaps at the end of the day is what Greenspan and Duisenberg can accomplish that the squabbling political sector cannot. Without the unspoken co-operation, we could get that collapse that seems to be the center of so-many concerns both in and out of government and, a concern certainly prominent these days in the financial hierarchy.
If the policy is not "enlightened" (as some will argue in the weeks ahead as this all sinks in), it is at least pragmatic -- and from that it will derive its staying power. What this fait d' accompli does for gold and gold owners can be seen in the rear view mirror -- about 30 years ago -- in far away time and place called the 1970s. The chart shown below certainly hints at something in the air, and a market building toward what could be a major breakout. Today could very well be the opening volley signalling a major move to the upside.
http://www.usagold.com/AMK/MK-gold.html