Gold Gets Taken To The Woodshed.
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    In This Issue.

    * More thoughts on Gold.

    * The dollar fights back in U.S. trading.

    * Regional manufacturing indexes disappoint.

    * Canadian Retail Sales surprise!

    And, Now, Today's Pfennig For Your Thoughts!

    Gold Gets Taken To The Woodshed.

    Good day. And a Wonderful Wednesday to you! It really sad to watch a team that has "given up". So much so, that I turned off the Cardinals game and switched to the Little League World Series. Hey, at least those kids understand that it's a dream to get to play for a championship!

    Well. the tag team match yesterday didn't work, as the currencies just couldn't hold off the dollar, and they lost ground all day. It really looks to me to be much like the partisan battles on Capitol Hill. with the overnight markets moving currencies one way, and the U.S. markets moving them the other!

    The losses were big. But not at the same pace as Gold lost ground! OMG! Gold got taken to the woodshed all day, and by the end of the day it was an ugly scene with Gold, as it lost over $68 on the day, in HUGE volume. So, we'll have to hold off on the printing of those "Gold $2,000 Baseball Caps"! But, to prove it was a one day phenomenon. Gold is back on the rally tracks this morning, rising $20 in early morning trading.

    So. after looking at all this stuff being said about the expectations regarding Big Ben Bernanke's speech on Friday, I've got this thought. If the Fed DOESN'T talk about additional stimulus needed, and deep sixes QE3, we could see a harsh correction of Gold's price. It's due, and that could very well be the catalyst.

    But then, I still suspect that he's going to at least discuss the Fed's options to stimulate the economy, to prove there's still arrows in his quiver. And if that happens, we'll have to see what the markets think of it. Usually, the markets react to "options" being discussed.

    Every year, at the San Francisco Money Show, a customer comes to the booth and we talk about stuff, and then he hands me his latest copy of the Privateer, and shows me what the writer of this excellent newsletter has to say. I read it quickly. Yesterday, I noticed that Ed Steer mentioned the Privateer, so I had to too!

    "The last time the price of Gold soared to this extent was in late 1979. Back then, Paul Volcker as Fed Chairman brought it to heel by letting go of US interest rates and watching while short-term rates soared to 20 percent plus. That "solution" today would turn every nation in the "developed" world into a giant sized Greece. The fiat money system just "celebrated" its 40th birthday. It won't have many more." - Bill Buckler - The Privateer, 21 August 2011

    OK. Japan announced last night that they are allocating $100 Billion to a fund that will be used to fight the rise of their currency, the yen. I can't tell you how absolutely ridiculous that is to announce the size of the fund to the markets. You can hear the markets saying, "Is that all you brought?" I would think that it won't be long before the markets are pushing yen toward 70. just to show the Bank of Japan and the Finance Ministry who's boss.

    Yesterday, Canadian Retail Sales for June printed, and I had told you that I thought the data would disappoint but not badly. Well, just to show you that I'm not "Mr. Know-it-all" (can you hear Rocky the flying squirrel's voice saying, "and now a word from Mr. Know-it-all"?) Canadian Retail met the expectations of a rise of .7% in June. So bully for them! And May's figure was revised upward too! That puts the annualized rate of growth in Retail Sales at +3.2%, which will almost reach 2010's figure of +3.3%... After taking a breather in the first couple of months of 2011, the Canadian consumer came back with a vengeance. And the Canadian dollar / loonie is steady Eddie.

    I saw where a former colleague of mine at the Sov. Society, Sean Hyman, of whom I greatly respect, issued a call to sell the Canadian dollar ETF that was held in a portfolio they issue. He said that he like the loonie's future, but for a short term move, he thought it best to sell now, and buy back later.

    OK folks. this is the difference between what I do, and what Sean does. Sean is a trader, and takes profits (and losses here and there) whenever he sees the opportunity to do so. I on the other hand, am here to tell you to diversify your investment portfolio so that not all of your investments are denominated in your base currency. This is done to reduce the risks of your portfolio and give it a proper diversification. To me, currencies are used for that, and are we have long relationships with the currencies we hold.

    Yes, there are times to "get out". and I don't have a problem telling you to do so. But selling now, and buying back later for a few basis points is not my bag, man. I'm telling you, that's not my bag, man. (do that in your best Austin Powers voice!)

    The late Dan Fogelberg wrote and sang a song called, "There's a Place in the World for a Gambler". and to me. that's what trading on short term indications reminds me of. But, there are guys that do it, and do it well, and I have no problem with that! To each his own! So, I send good wishes and luck to Sean. (Hope all's well with you buddy!)

    After three or four days of allowing the Chinese renminbi to weaken, the Chinese are back to allowing the currency to gain, and the moves have been strong the past two nights. So much so, that the renminbi is trading, once again, at 17-year highs.

    I see where German Business Climate as measured by the think tank IFO, fell in August. it's been a year (June 2010) since the Business Climate index was this low (108.7). But, I must say that while the August decline was steep, this index remains well above the long term average. So, it's not all bad.

    Same with the borrowings at the ECB's lending facility. the borrowings are daily, but to me this is just a flow of business, and not a sign of stress. I would think that if we saw borrowings every day at the 1-week window. and that hasn't happened. yet!

    Here in the U.S. July New Home Sales were very disappointing, falling -.7% , and June's figure was revised downward from -1% to -2.9%! We won't see the Home Price Index until next week, but if sales are slowing like this, the prices if they haven't already, will be coming down more. To a place where buyer and seller meet and agree.

    And in the last 10 days. we've had manufacturing indexes in New York (Empire), Chicago, Philly and now Richmond, all show some serious rot on the vine. That's not a good sign folks.

    Today, we'll see the color of the latest print of Durable Goods Orders (Durables) for July. This data will try to reverse June's horrible showing of -2.1%...

    In New Zealand overnight they saw some promising data. so let's go to the tape! New Zealand's July Trade Balance printed a surplus of 129 million kiwi! (which is about $107 million dollars) Hey! The so-called experts there, were calling for a deficit of 100 million kiwi, so printing a surplus was a nice surprise! However, New Zealand has a LOT of work to do here in reducing their Trade Balance. So, let's not give them the gold star just yet.

    And in Australia, construction and building data continues to be revised higher, which is a good sign for the final 2nd QTR GDP number. The Aussie dollar (A$) is finding it difficult to find a bid this morning though.. so this will have to be worked on, eh?

    I had a reader send me a note the other day, asking me why we did not offer the currencies of Chile and Russia. I told him that I really liked Chile, and if you believe in the price of Oil, then Russia is a good Oil play. But. unfortunately, these two currencies are not liquid trading currencies. They don't have a wide distribution, and whenever you have that, the currency is subjected to speculation. So, I just won't go there. for the last thing a customer wants to hear, when they go to sell their currency is that there are no buyers.

    And did you see that Moodys downgraded Japan's credit rating? I doubt this will do anything to the yen. and like I said above, I bet the currency traders are licking their chops right now to take yen's value higher and higher.

    I don't have a "Then there was this" today. so, Let's go to the Big Finish!

    To recap. Gold got sold like funnel cakes at a state fair yesterday, losing $68 on the day. But is back on the rally tracks this morning. Along with the currencies that got sold in the U.S. market yesterday. Japan announced a 100 Billion yen fund to fight the appreciation of the yen, and Moodys downgraded Japan's credit rating, but that won't stop the markets from taking the yen's value higher and higher. and Chuck discusses the difference between "trading currencies, and investment diversification with currencies".

    Currencies today 8/24/11. American Style: A$ $1.0490, kiwi .83, C$ 1.0130, euro 1.4465, sterling 1.65, Swiss $1.2670, . European Style: rand 7.2020, krone 5.4215, SEK 6.3050, forint 187.70, zloty 2.8725, koruna 16.9175, RUB 28.87, yen 76.50, sing 1.2050, HKD 7.7955, INR 46.02, China 6.3885, pesos 12.38, BRL 1.5965, dollar index 73.76, Oil $85.04, 10-year 2.13%, Silver $41.91, and Gold. $1,841.55

    That's it for today. Well. did you feel the earthquake? We didn't feel it here in Missouri, but apparently, the earthquake that was centered in Virginia was felt as far away as Canada! I was not in the best of moods when I started writing this morning, but then Bob Marley's Jamming song was playing, and soon I was singing along and getting in a better mood! YAHOO! And that was followed by Heartsfield's Shine On. so I've got that going for me today! Thanks to all who sent me their "ways" and "methods" of clearing up gum infections. Now. let's go out and make this a Wonderful Wednesday!

    Chuck Butler


    EverBank World Markets



    Posted 08-24-2011 11:43 AM by Chuck Butler