Tuesday, October 18, 2005, 8:01:00 PM ESTGold and Dollar Market...

Tuesday, October 18, 2005, 8:01:00 PM EST

Gold and Dollar Market Summary

Author: Jim Sinclair





TIC Boosts the US Dollar

The net foreign capital flow into the US surprised traders as they read the headlines and listened to the "just thrilled" talking heads. The predominant element in this increase was not purchases of US Treasuries by foreign central banks or investors but rather investment in corporate US debt issues. That is not a source that can be counted on or has ever financed a nation’s deficits. Even so, the glee was uncontrollable.


The real test is at what point US dollar interest rate attraction becomes offset by the growing realization of increased inflation.

It is getting harder every day for the Fed spinners to keep the public convinced that the USA is enjoying business growth in a non- inflationary world. There will come a point when increased rates lose their dollar-positive impact as the fall in the dollar's buying power overcomes rate attraction.

The Federal Reserve continues to do its “HAWK TALK” which in itself is a means of creating plausible denial when the economic sins of the past come back to haunt us all. Now Chairman Greenspan is concerned about inflation and the high level of energy as per the article below.

This is only the first and in fact a modest wave of the inflation that is coming down the road directly at us. The real impact is not a product of energy alone but has a super inflation engine called Bernanke’s Electronic Mayhem Money Printing Press- made in Japan of course. The Fed Chairman has performed magnificently as a creator while the Fed governors were left behind as benign spectators as the train wreck of US finances switched into high gear in 2000.

There is a point at which the increased cost of money will create Refco-like problems all across the COT board. Nothing so far spoken of is the cause of a one week meltdown of a multi-billion dollar commodity, currency and over-the-counter derivative operator only 60 days old in the public sense. That then is the limit of rates in terms of dollar attraction. Rates will rise higher than expectations but inflation will be the real shocker. This is nothing more than what was experienced in the 1970 debacle but the order of magnitude of dislocations will be so much higher this time around.

The market will inform us of the point at which inflation becomes a greater influence on the dollar than the interest rate differential between the dollar and other currencies. That shift might have even been today as the dollar bolted on a misinterpretation of the TIC report. We shall see. You have the tools to see if you are willing to use them.

Greenspan says energy prices are 'drag' on growth
Craig Torres and Scott Lanman
Bloomberg News
October 18, 2005

Rising fuel costs have "drained" consumers' purchasing power and "will undoubtedly be a drag" for the global economic expansion "from now on," Federal Reserve Chairman Alan Greenspan said today.

Record prices for crude oil, gasoline and natural gas following hurricanes Katrina and Rita were "an accident waiting to happen" because rising global demand for fuel had been met with "lagging additions to productive capacity," the Fed chairman said in a speech to a group of Japanese business leaders in Tokyo.

With gasoline prices up 33 percent from a year ago, the central bank is trying to contain inflation expectations without choking off economic growth. Fed officials raised their benchmark overnight lending rate a quarter percentage point to 3.75 percent on Sept. 20. Since then, several policymakers have suggested they are more worried about escalating prices than a sharp slowdown in the U.S. economy.

"Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on," Greenspan said in the text of his remarks.

Greenspan, however, gave no indication of how the central bank would respond at the Nov. 1 policy meeting to expectations of slower growth and rising inflation.

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