anyone else sick of this?, page-33

morgan

I think I saw such a number given my Armstrong who is bullish on Australia and gold, and I pushed it out of my mind in disbelief. After what I have seen happening over the last 6 months to the AUD, I am now a believer in AUD/USD 2.000.

It will also mean that the currencies of many Asian countries will also rise relative to the USD (especially China and India). I am hoping they continue with their negative real interest rate policies so that gold remains attractive as an investment and in fact will become cheaper for them to buy (after taking into account their rising currencies). Over time the demand for gold will be determined by Asian and Arab nations with Europe and US being losing their gold hoards.

Bernanke is debasing the USD to help generate employment in the US (import prices go up and domestic production becomes more competitive while exporters also benefit on the international markets). The negative is higher oil prices for consumers and industry as well as consumers having to pay more for products. There is probably a net benefit to the US stockmarket from this, eg because the profits of US multinational corporations from their overseas operations are higher in USDs (the negative offset is a fall in the purchasing power of consumers).

Gold could go to $USD1700 by the end of this year. In terms of gold, if we only consider the USD falling relative to the AUD then to arrive at an AUD POG of $1400 (current level) the exchange rate would be 1.2143. Now that is scary for our economy. I would expect the RBA to reduce interest rates to push AUD down a bit.

What is being played out is competitive devaluation because other countries have pegged their currencies to the USD at too low a level (eg China). They have all been printing money like mad to generate employment, but the currency disparity is being addressed by the US via a devaluation. Expect more inflation in the US (but not to the extent in the 1970s because workers do not have the same sort of bargaining power they had back then).

I am hoping for a bit of a turnaround for goldies in the second half of 2011 with a somewhat stronger USD, but I could be wrong.

So far the only upside from the rising AUD is that there is some compensation to some of the increased costs faced by goldies (eg oil imports, although still very expensive).

loki