Will the Dollar Fall?

by | Feb 22, 2002 | Archives

Or should we say why gold could rise?

Dear International Friend,

A recent message pointed out seven reason why the U.S. dollar could fall. But a big question is what will the dollar fall against? One thing may well be gold. One reason gold has remained depressed is that many governments, as they have demonetized their currencies, have instructed their central banks to sell gold.

There is one theory that this will cause a surge in the gold price as this temporary supply in the market is depleted. One reader feels this is every much the case as he wrote:

“Dear Gary,

“The gold market has been manipulated by Central banks formany years. This Central bank selling into open markets will be over soon. Many OECD countries have leased or lent gold instead of selling it officially. There is so much gold sold forward for the next 19 months that a huge amount of gold must be released or returned to the Central Banks. Currently the gold has been sold by the companies and Banks which leased it. All of this is easy to confirm and repeating all the technical factors is tedious.

“Within the last 20 days Central Banks in China bought in excess of 31,000,000 kg, Russia bought 30,000,000 kg at once plus undetermined other amounts, Japan bought 34,000,000 kg. Japanese gold sellers purchased another 91,000,000 kg of gold primarily for the booming Japanese markets as wary Japanese savers remove money from Japanese banks they view as unstable.

“Japan has scandals about false bookkeeping similar to Enron (and the major US media conglomerates) in its interlocked corporations. The Japanese Ministry of the Economy announced it will be unable to cover losses in bankrupt banks and brokerages and has reduced the government guarantee for bank deposits. This has started the boom in gold sales. Russia is using the gold to make gold coins. China is selling the gold to wealthy Chinese.

“If the gold price is $315 per oz., speculators will be unable to buy the gold needed to pay back the gold borrowed from the Central banks. These means the central banks are trying to keep the gold price lower than this. When delivery is required on all this gold that has been lent, there will not be enough gold unless the Central banks sell more gold they have committed not to sell into the market. This may work for awhile but then what?

“A single political misstep could cause a spike. Many Central Banks may try to keep the price under control and there may be more gold available than the official statistics suggest. So it may be yet a whilebefore markets overrule government pricing, but it could also be that gold prices may suddenly become interesting.”

This is an interesting point of view and I have asked our eClub advisors to share their opinions on what might happen to the price of gold.

Until next message, good global business and investing.