Gold Soars To An All-Time High!
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In This Issue..

* It was all about Gold yesterday!                    
* Commodity Currencies take the lead today...                    
* The story behind the euro's non-move...                                    
* Budget data prints today...                                                                                 

And Now... Today's Pfennig!

Gold Soars To An All-Time High!                              

Good day... And a Wonderful Wednesday to you! What a day for Gold yesterday! WOW! In case you were trapped in a cave and didn't hear the news... Gold, which I said yesterday morning looked like it was going to take out its all-time high, did take out its all-time high, and not just take it out! Gold pushed past the all-time high of $1,033.90, and didn't stop until it was trading $1,047 and change! WOW! No check that... Double WOW!

The Reserve Bank of Australia's (RBA) rate hike the previous night, opened the door to this run by Gold, as the Gold Bugs all came out and bought the preferred investment to counter soaring inflation... You see, if the RBA is raising rates, when most every other Central Bank is stuck in the mud with near zero rates, the RBA must see something, eh?

Well, I don't know about what they see, but I would guess it's inflation coming around the bend... I hear that inflation coming, it's rollin' around the bend, and I ain't seen the sunshine since I don't know when... Now... The RBA did say that they realized that they had reacted quickly last fall cutting rates too quickly and too low, and this rate hike would begin to reverse those panic cuts... The RBA did not say that they see inflation... But riddle me this Batman... Why would the RBA not just wait and hike rates 50 BPS in a couple of months if all they were doing was reversing their panic cuts?

So... Yesterday, was all about Gold! And why not? Gold has a few things going for it right now... 1. dollar weakness 2. inflation fears 3. rising oil prices and probably the biggest thing would be the momentum buying that takes place when mom and pops all see on the evening news that Gold has reached an all-time high, and they go out the next day and buy... Shoot Rudy, we couldn't get these people to buy when Gold was clawing its way to $900, couldn't get them to even notice Gold when it was $950, but now that its at the all-time high...

Today... I think we'll see things settle down a bit on the Gold front. I don't mean to take the move in Silver lightly... Silver pushed way past $17 once again, following Gold higher... Instead of Gold today, I think it will be more about the dollar...

Yesterday, I told you about the story in the U.K. Independent regarding the alleged secret meetings of countries to remove the dollar as the clearing mechanism for buying Oil. I did mention that the Saudis had denied these meetings had taken place. Now... Here's the big deal behind any removal of the dollar as the clearing mechanism for Oil... It's the perception, folks... The "KING DOLLAR" would no longer be needed to buy Oil...

As far as the affect on the dollar, the actual physical removal wouldn't kill the dollar per se, as most of these Oil producing countries, now take their dollars they receive for Oil and trade them right away for something else... So the net affect now on the dollar is zilch... The dollar is bought, the dollar is sold... But, the perception folks... This is the Big Kahuna here... And, think back to all the discussions we had a couple of months ago regarding the calls to remove the dollar as the reserve currency of the world... Wouldn't removing it from Oil trades, be just another step in that direction?

OK... Well today, the Commodity Currencies are the ones front and center in the assault on the dollar... Aussie, kiwi, loonies, real, rand, and krone are all lighting up "green" on my currency screen, which means they are UP VS the dollar! Doesn't it make sense that these Commodity Currencies would be the currencies to push the dollar around the schoolyard, especially after the RBA Opened Pandora's Box of interest rate hikes? I think so... Because, as I said yesterday, I think we'll begin to see more countries / Central Banks come to the rate hike table... And they are all on this list of Commodity Currencies! Which again points toward "seeing inflation pressures" in the future...

The euro? Well, even the best fall down sometime, even the stars refuse to shine sometime, eh? The official "offset currency to the dollar" participated in the currency rally yesterday moving as high as 1.4765, but overnight, it has retreated to 1.4715... Yes, even the Big Dog, has to take a back seat to the Commodity Currencies right now... But... That doesn't mean the euro is shaky... That the euro is weakening... That the euro has lost its place as the Big Dog... Not one iota! It simply means that sometimes other currencies take a flyer VS the dollar, while the euro bides its time... Taking my time, choosing my lines...

And I would bet you a dollar to a Krispy Kreme that the European Central Bank (ECB) is champing at the bit to join the RBA in a rate hike cycle! The ECB is a stickler for inflation fighting, a "hawk" if you will, and if the RBA is feeling some inflation heat, the ECB is sweating under the collar for sure! But, the Eurozone is hanging on to its nascent recovery by the skin of its teeth right now, and would not be able to continue if rates were hiked right now... So, here's the deal... The ECB "wants to"... But can't hike rates right now... But you can bet your sweet bippie that the ECB will hike as soon as they see the light at the end of the recession tunnel! I mean, they resisted cutting rates to the bone didn't they? That alone should give you an inkling of what' on their minds!

I think at this point it is important to note that even with the currencies moving strongly VS the dollar since March, they are still roughly 10% below their high levels that they had reached before the financial meltdown in August of 2008... So, some people wonder if they "missed the boat" because of the strong moves since March... I think this proves that they could potentially see the currencies move back to their previous highs...

Ty Keough, pointed something out to me yesterday when I was talking about this to the desk... Ty said, that this move probably has been more genuine, in that prior to the financial meltdown there was all that liquidity, and money flying around pushing risk assets higher and higher... Well, there certainly isn't any liquidity flying around this time! So, the moves by the currencies have been actually stronger, and with a stronger base...

Today... We'll see the Monthly Budget Statement for September. I laugh at the name of the data, given this has been nothing but a Deficit for a month of Sundays now... So, why not just change it to the Monthly Budget Deficit? I mean it couldn't even post a surplus in April or June when normally tax receipts outweigh the deficit spending! I know, I know, you're squirming in your seat thinking that I'm going to go on a tirade about deficit spending once again, when you've heard it from me over and over and over again for years now... Well, I have a treat for you... I'm not going to go there today! I mean, it certainly isn't important to our leaders... So why should I continue to make a big deal out of it?

HA! Gotcha! You know me, I can't just leave the deficit spending, and national debt alone! I can't let the leaders of our country win! I'm going to fight them to the bitter end, and you should too! Come on! Follow me! We can win this battle, if we have enough people to fight it!

And then there was this... I'm seeing more signs that the break of currencies and stocks is happening... And what a welcome thing that would be! These two have different pricing mechanisms and a low correlation to each other, which leads to both being in an investment portfolio for diversification... But, as chronicled many times in the past, since March of this year, the two have moved together... But last week, we saw a sign that fundamentals might be coming back into play... And then overnight, in Asia, we saw Asian stocks move significantly higher, and the dollar remain at current levels, not getting sold, as in the past 6 months... Hmmm... Maybe, this is just another teaser... But, I have to think that a return to fundamentals is coming... And none too soon either! For you all know what I think of future stock returns!

OK... To recap... Gold hits an all-time high and continues to move higher! Did the RBA smell the smoke of inflation burning? The Commodity Currencies are the story today as they are the leaders of the pack VS the dollar. Perception is the key to the dollar being removed as the clearing mechanism for oil... And, the Budget Deficit prints today...

Currencies today 10/7/09: A$ .8910, kiwi .7345, C$ .9455, euro 1.47, sterling 1.59, Swiss .9705, rand 7.4690, krone 5.6840, SEK 7.01, forint 182.40, zloty 2.8625, koruna 17.47, RUB 29.77, yen 88.90, sing 1.40, HKD 7.75, INR 46.67, China 6.8265, pesos 13.51, BRL 1.7590, dollar index 76.38, Oil $71.15, 10-year 3.24%, Silver $17.39, and Gold... $1,042.28

That's all for today... Well... That was SOME GAME last night in the tie breaker between Detroit Tigers and Minnesota Twins, with the Twins finally winning in the 12th inning! A BIG night for my beloved Cardinals, as they begin their playoff series with the Los Angeles Dodgers... The BIG question is will the Cardinals hit? If they do, watch out, World Series here we come! I did an interview with a writer for  Business Week yesterday, I wonder what actually gets printed... If anything! Well... I've got my "blue" shirt on today, so it must be video taking day! I think we're doing two today, so I've got that going for me! OK, time to hit "send"... I hope you have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 10-07-2009 9:46 AM by Chuck Butler