I’m trying to keep my nerve at the moment even though I’m holding some gold investments. But I am beginning to feel the pinch. The dollar rally seems to be gaining some momentum which is starting to concern me. I would appreciate your views on when you envisage a rebound for gold. RT
Should I wait and stick with gold or is it maybe time to switch my investments? MV
I can understand why gold fans, including our own Bill Bonner, may be scratching their heads right now. Gold’s image is that of a safe haven investment. When everything else is going wrong, there is gold. Solid. Reliable. Permanent.
Thing is, though, it isn’t working out that way. At least, not thus far. Despite all the turmoil, gold yesterday hit an 11-month low. So it’s an appropriate time to take stock, and re-evaluate the case for gold. Does this dip represent a buying opportunity? Or are there further falls to follow?
Well, there is one reason to be cheerful (if you’re holding gold, that is). And that’s the dollar. I’ve mentioned before why I’m bearish on the greenback — it’s managed by a monetary authority, the Fed, whose incentive is not to keep the currency strong.
And there other reasons for gold bugs to be optimistic. As our commodities watcher Garry White explains, the monetary factors, the real economy factors and the fundamentals all look rather bullish.
Garry doesn’t believe gold will fall much further. In fact, he reckons it’s a buying opportunity.
Will a rise in exports stave off recession?
Theo Casey came striding over to my desk wearing a purposeful grin yesterday.
"You can throw your economics text books out the window," he said. Theo was referring to the latest UK trade data. Economic theory tells us that a fall in the pound should bring about a rise in exports. But the latest news is a tad disappointing. There was a rise... but not a huge one.
It is, as Theo himself acknowledges, a little early to call this. Nevertheless, yesterday’s figures give us something to chew on.
The two items that caught my eye are:
- The volume of exports (excluding oil and other erratic items) rose 2.5% during the month of July; import volumes rose 0.5%
- Export prices were 0.5% higher in July than in June; import prices were virtually unchanged
The first observation shows that exporters are shifting more products. Combine that with slightly higher prices and there is some cause for optimism. Or is there?
The sterling trade weighted index was fairly flat during the month in question. But that’s not really the point — trade effects tend to lag behind currency moves. Since November last year, the pound has lost around 10% of its value on a trade weighted basis. In that context, the latest trade figures are somewhat underwhelming.
I believe this story has further to run. Sterling has not yet found its level. It was riding high for a while, but is now being brought down several pegs. How many pegs remains to be seen...
Discover here how I believe this saga will play out — and how you can prepare yourself for the rocky road ahead.
Until tomorrow
Ben Traynor
Editor
PS Just a quick reminder that the Fleet Street editors are at a conference in France next week. I will email as often as internet connectivity allows...
Selected articles:
Manraaj Singh on the mining company set for a triple digit gain.
Garry White on why now is a good time to buy gold.
The Daily Reckoning — The feds are running scared...
The fog of war — that is, in the "war" between inflation and deflation — is lifting. We’re beginning to see more clearly which way the battle is going.
"America’s giant mortgage companies nationalized," is how Le Monde treated Monday’s big story. "The biggest bailout in history..." it went on.
But what does it mean when the world’s most free-market government nationalizes its largest finance industry? It means a couple things:
First, that the days of "laissez-faire", even ersatz laissez-faire, are over. No more deregulation. No more tax cuts. No more free trade agreements.
Second, that the feds are running scared. They are in retreat. The battle between a natural market correction...and an unnatural, inflationary boom...is going against them.
You can read the Daily Reckoning in full here.
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