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Gold bugs dismiss Dubai, deride dollar
Commentary: Fans of the yellow metal see gold's drop as no cause for concern
By Peter Brimelow, MarketWatch
Last Update: 12:01 AM ET Nov 30, 2009
NEW YORK (MarketWatch) -- Dubai roils the gold market, but the gold bugs remain bullish.
On Wednesday afternoon, with stylish timing, the Dubai authorities told the world that they intended, in effect, to default on some $60 billion -- perhaps more -- of debt borrowed to turn their unattractive location into a kind of Middle Eastern Las Vegas.
They then began the Eid festival, which lasts until Tuesday. America, of course had Thanksgiving.
Markets, even if open, have not been fully functional since the announcement.
As The Privateer put it this weekend: "Friday was, of course, quite a day. ... The day's trading range (taking into account Asian and European gold trading too) was more than US$60, with gold closing US$42 above its intraday lows and down just under US$13 from the all-time highs it had set in U.S. trading on November 25."
For gold observers, the question is whether the Dubai downer will stop the gold charge? Or, perhaps, accelerate it?
The end of the week saw a knee-jerk "flight to safety," with the U.S. dollar surging and gold staggering.
The Privateer was scathing about the logic of this: "Gold is not what the financial community means when they talk about a 'flight to safety.' They mean shunning all 'risky' assets in favor of U.S. dollars and Treasury debt. The 'flight to safety' argument has held firm while Treasury debt climbed from US$0.5 TRILLION to $12.0 TRILLION and while the trade-weighted U.S. Dollar Index plunged from 165 in early 1985 to 71.3 in early 2008. They are still talking about it now, with the yields on short-term Treasury paper (the favored paper in all 'flights to safety') at their lowest levels in history and with the US Dollar Index having fallen by more than 16% since last March.
It continued: "The financial community is well aware that the face value of Treasury debt paper moves in inverse ratio to the interest rate on the paper -- that as rates go up the value of the paper goes DOWN. They are equally well aware that rates are at all time lows. Yet a 'flight to safety' remains a flight to the U.S. dollar and government debt paper."
The concept that the U.S. dollar is (ahem) "safe" is more succinctly if idiosyncratically attacked in Harry Schultz' latest issue of HSL Junior, the supplement to his International Harry Schultz Letter: "Ask any innocent friend/family [member]: 'Are you a gold bug or a U.S. dollar bug?' That puts them on the spot. They are one or the other. If a $-bug, they're losing ground big time, down 33% in a year. If not, [as] a gold bug, they're losing buying power and a big time investment gain."
I particularly value the comments of what I call the "geezers" -- veterans like Schultz -- on the grounds they have been here before.
Another veteran, Dow Theory Letters, Richard Russell, felt moved to write on Friday: "Over the holiday, I've been reading the gold advisories that I usually follow. Almost without exception, they've had their subscribers trade out of gold. ... I've said over and over ad nauseam, that you can't out-trade a powerful bull or bear market. Bull markets like this gold bull market come along, if we're lucky, once or twice in a lifetime. I'm talking about bull markets that can make you rich. But there's something very different about this gold bull market. It can do two things -- it can make you rich AND it may save you from a disaster in your other investments. This gold bull market is attacking the very foundation of all investments denominated in paper currencies."
More prosaically, the LeMetropolecafe.com site reported Friday that India, the world's largest gold importer, had stepped up its buying of gold on the price break. In the past, this has meant that gold is headed up.
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