Where's The Gold?
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In This Issue.

* Is Risk On/ Risk Off Trading fading away?

* Dollar is initially sold, but rebounds in NY trading..

* Italy announces they will meet the EU debt limit!

* Gold posts three-day rally.

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

Where's The Gold?

Good day. And a Wonderful Wednesday to you! Well. the U.S. election is over, thank goodness! I'm not going to get into winners and losers, but will point out that the it's business as usual with debts and deficit spending, and that's what keeps the dollar in the dumps, folks. And that's an additional tax on you. Yes, your loss of purchasing power in the dollar is a tax, or at least that's how I view it.

The dollar is softer this morning than yesterday morning. I told you yesterday that the currencies were attempting to mount a rally, and that attempt continued throughout the day. The overnight markets just pushed a little harder on the dollar, and so, here we sit on this day after the U.S. election, with the markets scratching their heads and trying to figure out which direction they are going to take the currencies and metals. The initial reaction by the markets was to sell the dollar, but it was almost like they were kids waiting to see if mom was going to approve of their selling. Mom would be the U.S. traders.

And, while I don't believe we'll see demands for recounts, etc. I find that the actual vote of people was pretty much split down the middle, which is going to lead to some big fights regarding taxes, spending, the budget, monetary policy, you name it. And the way I see this playing out, is that the markets eventually begin to tire of the fighting going on, and begin to take down the dollar's value. Of course that's just my opinion, and I could be wrong.

So. now that the election stuff is done, and we have an idea of how the next couple of years are going to play out for the currencies and metals, we can refocus on what's going on in the Eurozone this morning. Recall, I told you a couple of days ago, that the vote by the Greek Parliament on the new austerity package was due today. And we should see the color of that vote this afternoon. You may also recall that I told you the rumor was that the package would pass by the thinnest of margins. We'll get our answers this afternoon..

I think this vote result is holding back the euro this morning, as it is champing at the bit to move higher VS the dollar. This vote result and the fact that German Industrial Production printed this morning and was weak once again in September, falling -1.8%, pushing the 3rd QTR total to +.7%, but the trend here doesn't look good for the 4th QTR..

The Aussie dollar (A$) which yesterday was the best performer, has added to the previous night's gains. All eyes will be on the Aussie jobs report which is due to print tonight. I have to say that I really liked and approved of what Reserve Bank of Australia (RBA) Gov. Stevens, had to say after the no-move rate announcement Monday night. In addition to what I told you yesterday, Stevens also had this to say. "With prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being."

That makes me believe that unless we see a sharp turn for the worse in the global optimism, that the RBA will hold all future rate cuts scheduled for 2013. Australia, is very keen to inflation pressures, folks. and at any hint of them, the RBA acts to squash them. In this case they are being proactive. instead of being reactive, which is normally the mode of operation for Central Banks.

You know. the RBA non-move the other night, really made the risk campers sit up and take notice. And since then the risk sentiment has grown, which can be seen in the strong performances of commodities. The Standard & Poor's GSCI Index of 24 raw materials has gained 2.3% since the RBA announcement Monday night. And with the risk sentiment climbing once again, we should see strong performances from the currencies tied to commodities, like Australia, New Zealand, Canada, Norway, and more.

Long time readers know that I've been wishing and hoping and thinking and praying for the day when we got back to currencies and metals and stocks all trading on different mechanisms that to be just thrown in the same barrel and traded as "risk on" or "risk off". Until 2008 and the financial meltdown, currencies, metals and stocks had a very low correlation to each other, and different pricing mechanisms. Since 2008, they have been all rolled up in one trade. Now, we've seen some short-term periods where these asset classes would trade on their own, but would go right back to the "one trade". Until now. I do believe that we're finally seeing the end of this "risk on", "risk off" trading.

And THAT would make me one Happy Camper folks! Because once again, I could say with confidence that currencies and metals make great diversification tools because they have low correlation to stock and bonds, and different pricing mechanisms, once again! But it's not just that. I know that sentiment drives the markets' decisions these days. and so, when the stock market finds the trap door, it won't carry over to the currencies and metals.

I sure hope that what I'm seeing is on terra firma, and that we have finally come back to pre-financial meltdown trading.

Well. with the President re-elected, the Chinese are feeling better this morning, for they were told by the U.S. challenger that they would be labeled "currency manipulators" should he win. And since he didn't win, they don't have to worry about that label being affixed to them. Which means we could very well see the renminbi/ yuan appreciation slow down. It will take the markets to push for stronger / faster appreciation, but don't bet on them getting their way. But, slow appreciation is better than no appreciation or a loss of purchasing power that you get by owning the dollar, right?

The price of Oil jumped higher by $2 on the reelection news. The "oil guys" believe that given that things will be "status quo" going forward, and that the 129% gain in crude oil's price since 2009, will just keep going on. Hey! I'm not saying that! The "oil guys" are! So don't throw darts at me! The facts are the facts.

The Swiss National Bank (SNB) saw their currency reserves fall for the first time since February, but the move was not like flows caused it. The fall appears to me as though it was merely a "mark-to-market" move. In other words the values of the currencies they held, fell in value, thus reducing the SNB's total holdings' value. So, it's business as usual at the SNB. No, they don't have to defend the cross to the euro as much these days. But they are prepared to do so when called upon.

Italy announced some good news for the country and the Eurozone this morning. Italy announced that they will the year with a budget deficit within the European Union's limit, making Ital the ONLY country of the "peripheral countries" to do so! Italy's budget deficit will end the year at 2.9% of GDP, with forecasts of budget deficits in both 2013 & 2014 of 2.1%... Good show!

What's the U.S.'s budget deficit to GDP? Well. I guess if we actually had a budget. but I digress. the number you're looking for here is 10%... That was from the Fed St. Louis, so you can choose to use that number or your own!

The price of Gold continued on to a three day rally, and is back above $1,700. The things I've been reading have all reflected the same story, and that is once Gold slipped below $1,700, demand for Gold went through the roof! So, buying on the dips, as I've always thought to be a good idea, is what we've seen. I asked our metals trader, Tim, and he confirmed that last Friday was the strongest day of demand for Gold that he's seen in awhile.

I also saw a story on the web last night from the World Gold Council, where they are forecasting that India will import around 800 tons of Gold this year. Previously they had forecast a total of 640 tons for this year. 800 tons in 2012, is still lower than the 933 tons imported by India in 2011. But, given the 512 tons imported by China (we talked about a couple of weeks ago) and the total by India, shouldn't we have seen huge price movements upward in Gold? You bet your sweet bippie we should have! But until somebody does something about the PM's. we'll play these games.

Then There Was This. Remember when I talked about Germany's Gold and the reports that it was missing, and I said that those had been put to bed? Well, apparently NOT! So, here's a story I'm working on for an article that I'll be doing for the World Money Analyst newsletter.

Well. in the latest news regarding Germany's Gold. German politicians have initiated an audit by the Bundesbank (Germany's Central Bank) to confirm the country's gold reserves. Note that the majority of Germany's gold reserves is supposedly held with the Fed Reserve Bank of NY. But now a twist to the story. according to some media reports, the Bundesbank officials have had their request to audit their Gold holdings blocked by the Fed Res NY. Hmmm. Now, you know how these things can get all out of sorts. so maybe all of this isn't true. but. You know me. and there's smoke here, and where there's smoke, there's fire.

So, what could the FRNY have done with Germany's Gold? Well. they could have lent it out. in which case, the FRNY would have some explaining to do, eh? Then that would open up Pandora's Box of countries asking to audit their holdings at the FRNY. Talk about a fiasco! And what happens if its revealed that Gov't's actually hold less than they thought they held? Wouldn't that require them to go out and purchase Gold to bring their books up to date? And wouldn't that drive the price of Gold upward? Yes, and yes.

But again, this is all conspiracy stuff right now, folks. but what the news for this. I think we have a BIG story about to unfold, right here, right now, before our eyes.

And finally. since no one is allowed to audit the gold at Fort Knox. doesn't that make your spider sense tingle? Could this be like Geraldo and the opening of Al Capone's vaults? Just something for you to think about, and if it bothers you, write your representative, and tell them you want an audit of Fort Knox, & The Fed NY's Gold holdings!

To Recap. The election is over. and it's back to the business of reducing the dollar's purchasing power, and the currencies rally overnight, and the A$ adds to its previous night's gains. Gold has put in 3 days of upward movement, and the optimism for global growth continues to recover, as witnessed by the S&P GSCI Index that reflects commodity gains of 2.3% since the RBA left rates unchanged Monday night.

Currencies today 11/7/12. American Style: A$ $1.0445, kiwi .8285, C$ $1.01, euro 1.2815, sterling 1.5975, Swiss $1.0580, . European Style: rand 8.6460, krone 5.7375, SEK 6.7030, forint 220.95, zloty 3.2210, koruna 19.88, RUB 31.85, yen 80.10, sing 1.2225, HKD 7.7505, INR 54.21, China 6.2430, pesos 12.99, BRL 2.0325, Dollar Index 80.82, Oil $88.02, 10-year 1.67%, Silver $31.90, and Gold.. $1,718.36

That's it for today. well, as I get ready to send this out, I notice that the dollar is hitting back, and the currencies are losing some ground. Typical profit taking after gains have been booked, it appears to me. Well, I had to stand in a long line to vote yesterday. However, If I had just arrived at the poll ½ hour later, there was no one in line when I left! UGH! Bad timing, as usual! Just like changing lanes in traffic, and choosing a checkout line at the grocery. all bad choices! Oh well. I pass one of the BJC offices after going over the bridge to the office every day. and now they have a "Thankful Tree" in the window, and people can put a leaf on the tree and say what they are thankful for.. I would have to fill the tree with leaves! The list is so long! And I always feel bad if I've gone too long without thanking you dear reader for reading the Pfennig! Now, go out and have a Wonderful Wednesday, no matter if your candidate won or not!

Chuck Butler


EverBank World Markets



Posted 11-07-2012 12:00 PM by Chuck Butler
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