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-- Posted Tuesday, 4 April 2006 | Digg This Article
Thursday was an interesting day: the US dollar fell sharply against the euro and other European currencies, causing a spike in the gold price. Silver and other metals prices also benefited. US bonds fell, US stocks fell, US interest rate rose and the gold price increased. There it was: the dollar falling with rising interest rates and a rising gold price. Regular readers of these commentaries know we were waiting for this exact scenario. Under these conditions, I expect the gold price to continue to move upwards; even though it never does so in one, smooth, straight line.
What caused the drop in the dollar? US Commerce Secretary Carlos Gutierrez warned of rising protectionist sentiments in Washington while in Beijing on Thursday. Later in the day US Treasury Undersecretary Timothy Adams told a congressional committee that his department's number one priority is to get China to revalue its currency (upwards) against the dollar. Prior to this, Senators Schumer and Graham had proposed a tariff of 27.5% on all US imports from China and were going to force a Senate vote on the issue Friday. However, after returning from a trip to China, the two decided that they would, after all, not force the Senate to vote on Friday.
Anti-Chinese sentiment in America has been brewing for a while and it seems to be only a matter of time until they either enact protectionist legislation, such as tariffs, or force the Chinese and Japanese to let the dollar fall. I wrote about this before and showed that the most likely outcome would be for the Chinese and Japanese to let the dollar fall (http://www.paulvaneeden.com/displayArticle.php?articleId=109 ).
The problem, of course, is the ballooning US trade deficit with China. In order to let the renminbi appreciate against the dollar, China will have to sell more of the trade dollars it receives and buy fewer US Treasuries. That also means Japan will have to buy fewer Treasuries because the yen will follow the renminbi, and so will all the other Southeast Asian currencies and probably also the European currencies. But if all these currencies appreciate against the dollar, then all foreign investments in the US will have their returns diminished. If you were not a US resident, would you invest your capital in the US knowing that its Legislature is hell-bent on devaluing the dollar? Probably not, which is why investors reacted with their pocket books this week.
The net result of reduced foreign investments coming into the US will be higher US interest rates, a lower US dollar, a falling US stock market, declining US real estate prices, rising unemployment and rising gasoline prices due to higher oil prices as a result of a weaker US dollar. And, of course, a rising gold price.
Paul van Eeden April 4, 2006 ******** If you are interested in some of my views on gold and exploration stocks, I was interviewed on ROB TV (a national business television program in Canada) on Thursday night. Here is a link to the program: http://www.robtv.com/shows/past_archive.tv?day=thur . Scroll down to the 8PM segment, called Market Call Tonight with Howard Green.
If you want to know more about what I think, and what I buy and sell with my own capital, you could subscribe to my weekly newsletter. In it I tell subscribers what I buy and what I sell. I also try to explain my reasons. This week, as an example, I bought three stocks. Information about my newsletter and details on how to subscribe are all on my website at www.paulvaneeden.com (look under the Newsletter Section).
Paul van Eeden works primarily to find investments for his own portfolio and shares his investment ideas with subscribers to his weekly investment publication. For more information please visit his website (www.paulvaneeden.com ) or contact his publisher at (800) 528-0559 or (602) 252-4477.
Disclaimer This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. This letter/article reflects the personal views and opinions of Paul van Eeden and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Paul van Eeden, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and will not be updated. Paul van Eeden, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else's interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Paul van Eeden. Everything contained herein is subject to international copyright protection.
-- Posted Tuesday, 4 April 2006 | Digg This Article
Previous Articles by Paul van Eeden
Paul van Eeden is an independent investor, analyst and newsletter editor.
Born in South Africa, Paul graduated from university with a degree in chemistry and applied chemistry with additional credits in accounting, economics, business economics, philosophy, statistics, mathematics, biochemistry and physics.
Paul's first business was an African art distributorship, of which he acquired a 50% interest during his first year at university in 1985. He has experience, either as an owner, manager or director, in plastics manufacturing, food supplements and cosmetics distribution, advertising & marketing as well as the manufacturing and distribution of gas detection equipment.
Paul van Eeden left South Africa in 1994. He joined Yorkton Securities in Toronto as a stock broker in 1995 and moved to Global Resource Investments in Carlsbad, California in 1996. In November 2002, Paul decided to leave the brokerage industry and joined Doug Casey as co-editor of the International Speculator (www.internationalspeculator.com) newsletter.
His investment approach was shaped by the ideas of Benjamin Graham and David Dodd so Paul is always on the search for tangible value that can be bought at a reasonable price. That can usually be accomplished only during the trough of a market, which is currently not the case for general US equities.
Therefore Paul decided to focus on the natural resources sector, specifically gold. The period from 1996 to 2001 was a trying time - the bottom of the worst bear market in gold in twenty years - but, of course, it was also a time of opportunity.
At the San Francisco Gold Show in November 1998, Paul van Eeden introduced his original thesis that the gold price in US dollars is driven by the US dollar exchange rate, and that traditional commodity style analyses would not yield predictive results when applied to gold. He showed that a dollar-only view of the gold market is inadequate: understanding the gold price requires a global view, incorporating exchange rates across many currencies. This novel line of thinking is now ubiquitously accepted.
In 2003 Paul went further, showing that the price of gold in US dollars is tightly correlated to the expansion of US monetary aggregates (M3) and that an analysis of gold as money not only clarifies the gold price from 1971 to the present, it has other implications that are still unforeseen by most financial and commodity analysts today. One of these is that the gold price will soon exceed $1,000 an ounce. Another is that, aside from operational differences, not all gold mining companies will benefit equally from this increase in the gold price.
Paul van Eeden not only does his own research on the fundamental drivers behind the gold market, he also takes a hands-on approach to investment analysis: interviewing management, studying exploration projects and visiting mining operations. Whilst investing in mining and exploration companies is inherently risky, value is never far from his mind and features forcefully in his selection criteria.
Most of Paul's time, now, is devoted to finding investments for his own portfolio.
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Why The Gold Rally Will Continue
