Another Sign of the Dollar’s Diminished Standing?

In past times of geopolitical stress, the dollar has generally rallies as investors move to safer havens. That behavior was not evident today as investors fretted about possible escalation of conflicts in the Middle East and South Asia. The euro went up a teeny bit, the yen faded slightly, the pound retreated.

So where did investors go? To gold, apparently. From Bloomberg:

Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

“The only possible explanation for gold’s gains are the geopolitical tension in Gaza and in India and Pakistan,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.

Silver futures for March delivery gained 18 cents, or 1.7 percent, to $10.53 an ounce. The metal is still down 29 percent this year.

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24 comments

  1. Yves Smith

    On a day with low liquidity, you’d expect any investor action to have an exaggerated impact. The failure of the dollar to budge on the rising war of nerves in the Indian subcontinent is noteworthy. Both gold and oil moved strongly, that may prove to be less conclusive.

  2. Anonymous

    In times of conflict, scores get settled, personal and up. Have a look at Rwandan report. Much of the killing on a local level had to do with old family scores, do to diminishing land and ethnic family traditions with marriage ( who takes care of mom and dad and who gets land to start a new life).

    So in fact much of the killing was intra family, compounded by unresolved land disputes (court cases). MSM did a horrible job of making it out to be a straight ethnic cleansing job.

    So you can expect a fair bit of this to compound the problem in these areas of conflict. Simple land/resource grabs.

    Seems next year will be one unstable black hell hole manginifed by another.

    Skippy

  3. Anonymous

    I wish there was a GLD stock for platinum. I would own some of that instead of just GLD. I think that value of the dollar is going to drop significantly in the next 2 years. Along with that I am not sure that another currency is going to become the new leader so precious metals are the “safest” investment,IMO.

  4. Anonymous

    The leading (and disinformational) publications and media outlets always try to pin day to day movements to a single cause. You have not. I hope this post is an aberration.

  5. Anonymous

    National Geographic has a banner article in their January 2009 issue vilifying gold. There’s a chart on page 42 showing the price of gold since 1718 in 2008 dollars. Of course, an inflation adjusted chart of gold (money) will show a relatively constant price. Using the US government’s statistics on anything, let alone inflation is suspect in itself, but this worthless information is over the top.

    Another chart is called “How it’s used”, plotting gold “consumption”.
    jewelry- 2,399 tons
    electronics- 311 tons
    etf’s- 253 tons
    bar hoarding- 235 tons
    coins- 209 tons
    dentistry/other- 151 tons

    That’s a total of 3558 tons. Near the chart in fine print are the words “excluding central banks”. Hmmm, I wonder how much the central bankers hold? Well, how about 30,000 tons?

    http://www.reserveasset.gold.org/why_hold_gold/

    There’s really no way to verify the 30,000 ton figure, but let’s just assume there’s a lot.

    I can draw two conclusions from the above information.

    1. Central Bankers love gold.
    2. Price manipulation is easy.

    I’ll hang on to mine.

  6. Anonymous

    “Another Sign of the Dollar’s Diminished Standing?”
    Well, I guess a crack ho is diminished somewhat by the 100th bukkake take, but really, after 99, hasn’t respect esentially declined to zero??? The dollar is the world’s currency ho, always willing to be as loose as possible.

  7. Anonymous

    I would say gold is rising more on the recognition that the FED and the US government intend to attempt to inflate away the debt by devaluing the dollar much as FDR did in the 30’s.

  8. Ken Stremsky

    Article 1, Section 8 of the United States Constitution says Congress shall have the power

    “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”

    Article 1, Section 10 of the Constitution

    “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…etc”

    Congress should consider backing our currency with gold, silver, and other commodities. Backing our currency with gold, silver, and other commodities may reduce the possibility of hyperinflation.

    Congress should eliminate the Federal Reserve or veto many of its decisions.

    Our country may want to pass an Amendment to the United States Constitution that allows State governments to “coin Money” – make gold coins and silver coins. This may increase the amount of gold and silver found. This may reduce the amount of harm caused by the federal government.

    If the federal government is serious about growing the economy and creating jobs, it should stop taxing interest from savings accounts, dividends, capital gains, and estates. Businesses will have an easier time obtaining loans and investments. People and businesses will have more money to spend. Middle class people and union members would benefit from capital gains and dividends not being taxed.

    I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics.

    I ran for United States Senate from New Hampshire in 2002.

    My website is http://www.myspace.com/kennethstremsky

  9. SlimCarlos

    Yves,

    That the dollar didn't budge was interesting. That gold popped was meaningless, at least on a day like Boxing Day friday. Someone just ran the stops on Globex. Often they'll run it down near the open; on Friday they ran it up.

    Bloomberg makes up stuff. They can't simply say: "Gold (or oil or cotton or the S&P) was up (/down) sharply because, for some unknown reason, buyers (/sellers) outweighed sellers (/buyers)." So they make up a reason. I know this firsthand, at least with one reporter. I am sure other agencies do this too. If the sheen of Newtonian order is removed, one aspect of agencies' raison d'etre, a "value-added" one at that, would be removed.

    That said, gold looks ok here. Should have a good 2009. ZIRP and the race to the bottom should help.

  10. lineup32

    With commodities tanking and uncertain times filling the MSM GOLD bugs and the miners PR machines are running wild, again.
    The herd is moving and the financial press will try and push and shove the herd into the proper investment vehicles….The commodity narrative has been full of spooky stories and endless speculation so GOLD will get it’s turn at the Parabolic commodity chart as investment in modern times seems to have no other flavor.

  11. Anonymous

    In all other currencies, gold is priced at all time highs.

    Gold is showing tremendous strength especially with oil being down.

    Having 10%-20% of your cash in gold would cover any future inflation…..if you could find any to buy. Waiting times could be 2 to
    3 weeks out and premiums are running 10%. Still a nice insurance investment.

    Second choice, buy the source, miners.

    The train is leaving the station.

  12. Anonymous

    Gold went up the $20 in about 5 minutes after it topped a key technical level at $850. Check the chart, the mover up was very very fast based on short covering. The article is an example of idiots trying to explain things they don’t have a clue about.

  13. feeblemind

    Last summer I saw a chart showing gold and oil moving almost in lock step with each other over the last 3 decades. Even at $140/barrel, it took about the same amount of gold to buy a given amount of oil as 10 or 20 years ago. So my question is, is gold too high or is oil too cheap?

  14. GloomBoom.com

    This may just be a short upleg for gold, but that can only be seen in hindsight. Gold’s price fluctuates, it’s not always a conspiracy. I’m keeping mine too!

  15. Anonymous

    I am afraid that currencies are as manipulated as commodities and equities. Gold seems to retain what remains of a perception of the store of value. It too will be destroyed. There is no place to hide in this market.

  16. Anonymous

    Russia took to long to announce the backstopping of private debt. Unrest already starting.

    Red China will do public work projects but no way can they backstop the pool of foreign investments evaporating before their eyes.

    Germany can’t restart Euroland.

    USA has only done the temporary fixes necessary for the short term.

    Worldwide, if battles turn into wars then gold will rise faster and further.

    Paper currencies are debt from the get-go, a promise to accept and honor via trust versus a tangible.

  17. Stuart

    The dollar is garbage backed by a government whose accounting record makes Enron look stellar. It’s not worth the paper it’s printed on. Never buying US assets again. Don’t trust the books.

  18. melvin polatnick

    Becoming a union member was the quickest way to make a decent wage. Everybody wanted union membership. Easy credit made everything affordable and higher prices for union made goods and services were easily overlooked. Buying the union label was patriotic because it supported a higher standard of living for Americans. That was the way things were for decades. But the U.S. is now going through a recession and the consumer is becoming extremely price conscious and searching for bargains. Goods and services without union labor are cheaper and therefore more desirable. Unless the consumer is willing to pay the higher cost of goods and services the union worker will soon become extinct. Millions of former union members will then be forced to renegotiate their salaries on an individual basis.
    Let us hope the economy recovers and the union label will fly high again.

  19. Anonymous

    Spending government money solely to stimulate consumer spending would be a short-sighted mistake, one of U.S. President-elect Barack Obama’s top economic advisers said on Sunday.
    http://www.reuters.com/article/bondsNews/idUSN2826588320081228

    Here’s a dumb ass from the Obama camp and what can be looked forward too. I would argue spending money government doesn’t have, impoverishing future generations under a mountain of debt and a collapsing currency for any reason is short sighted but alas they will do it anyway.

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