re: *** inflation bad for gold *** Siameseparrot,Monty Guild on...

re: *** inflation bad for gold *** Siameseparrot,

Monty Guild on www.jsminset.com (the previous day) also had this to say about the Japanese Printing Press working overtime bewteen now and 31 March....

CURRENCIES AND GOLD

As an experienced investor in precious metals and currencies, and as a card-carrying cynic, I am not at all surprised to see that Japan is out making announcements today designed to cause a rally in the U.S. dollar.

As you may know, Japan's fiscal year ends on March 31, 2005. As you undoubtedly know, Japan is the largest foreign holder of U.S. government debt. As one can easily surmise, Japan has had a very big decline in the value of their holdings in dollar bonds over the last year. Now that their year-end is approaching and they must publish a balance sheet of the value of their holdings, the Japanese are reverting to a time honored manipulative behavior that is scandalously engaged in by many central banks.

They are trying to get the dollar to rise so their balance sheet will look better on March 31. They are making, and will continue to make announcements about how much they love the dollar, how undervalued it is, how they will continue to buy and hold dollars, and etc. The purpose of these rather ham handed pronouncements is to scare speculators and make it obvious that the Japanese will spend a lot of money on intervention to prop up the dollar between now and March 31.

Simultaneously, speculators are being warned that it will be expensive to bet against the Japanese who have a printing press working over time. They just take the money and buy dollar bonds with it. Actually, it is more complicated, but that is the end result. Thus, they accomplish two goals simultaneously. First, the Japanese prop up the dollar. Second, they send the value of the yen down and thus benefit Japanese export industries. From their side the speculators have also got a short-term reason to move out of currencies for a week or two. The selling of dollars with low interest rates to buy foreign currencies with higher interest rates is getting less attractive as recent rises in U.S. interest rates makes it less profitable.

Recent U.S. economic data continues to be negative for the dollar. Key takeaways from the data as we interpret it are:

1. Commodity prices are at 20 to 25 year highs. Soft commodities, like grains, and hard commodities, like energy and metals, are both at highs. This implies that inflation may have an up tick in coming months.

This is bad for the dollar and good for precious metals.

2. U.S. deficits continue to grow as a result of both military and social expenditures, and there is no program in effect to do anything about them. Again, this is good for precious metals and bad for the U.S. dollar.

3. The demand from developing countries for raw materials is very strong and shows no long-term sign of slowing. Thus, we may see continued high commodity prices, and they may be with us for a prolonged period (with temporary periods of respite). This is positive for the long-term price trends of precious metals and energy.

In summary, all of these trends argue strongly for a continuation of the downtrend in the value of the dollar after the Japanese have had their end of the fiscal year currency rigging fun.