Sunday, October 21, 2012

Precious Metals, Asian Trading, and the Election

While precious metals have moved lower over the last couple of weeks, the dollar has not budged.  Since last summer there has been a disconnect in the long trend, the long trend which had the dollar move inversely to all assets.  First the dollar strengthened, stocks fell, but gold moved up - this was the case last August.  Then the dollar stayed flat while gold fell and stocks moved up.  Now we are in another round of capitulation where the dollar stays flat while assets move lower.  The message to take away from this is that another major move is at hand.  Capitulation of a trend always results with such.

What will the next move bring?  Nothing is certain so let's analyize what has happened in the past to best understand the future.

One of the greatest moves of capitulation, and something still fresh in my memory, was the huge drop in silver in the Spring of '11.  Let us not forget when the move happened - it happened in overnight trading.  Asia was the live market when it happened.  This means one of two things:  Either China and other Asian States took it down, or JPM and Co. have great access to those markets.  This means that we should not trust Asia to support the Precious Metal market.  They are supporting the Status Quo just as much as any of them.

Now let's move to the current happenings - the election.  One of two things are happening here:  Either the Blue Team and the Red Team have agreed on terms for oil, gold, and stocks, or there is no more either/or  and there is now a Purple Team who have an exact idea of what will happen.  Although oil and gold is high, it could have gone higher by now if the Fed had juiced the flow of funds.  This would have had stocks higher and pensions and IRAs/401ks with them.  I think that people closing in on retirement are blind to what rising gold implies (the death of fiat instruments) and higher stocks would have trumped higher oil prices.  I think that higher asset prices would have been in Obama's favor for this reason.  The fact that they didn't move higher and that corporations are reporting poor earnings shows that the CEO class is pro GOP.  Yet economics (Neo-Keynesian theory) have set the table for the Democrat party.

If Romney wins he says he will label China a currency manipulator from Day One.  This has heavy implications because the world will know how weak Romney is from the get go.  If he doesn't give China this label he is a Flip-Flopper of epic proportions, but if he does then he is willing to sacrifice the dollar for the favor of the Corporate Class.  I say this because if China strengthens the Yuan it will take the dollar down by 20% over night, and will then force a run on the dollar that would equal another 20%.  This would see stocks rise, albeit equal to the dollar's drop in nominal terms, but basically if you are like most people and don't have your life savings in stock you will be broke.  Wages will not rise proportionally either.  Hard assets will also rise, and who can buy gold for $3k?  Not many people.

The fate of the dollar has an enevitable one, but with Obama it will happen more slowly.  I am not saying one choice is better than the other, but I want to make this observation so we know what will happen when the election happens.  I think that until the election the game will be on pause.  Sometime after  the election, maybe in November, maybe December, but by January, the fate of America and the dollar with it will come to pass.  The Fall of the dollar will last for a few months, upon which time it will die and a New World  of old will emerge.

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