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James Turk and Bobby Godsell expect imminent rise for gold

Section: Daily Dispatches

Gold: The Only Currency
that Can't Be Printed

The world is starting to see that it's not just the dollar that has
serious problems. Brewing financial crises and weak currencies make
gold the best choice for crisis protection.

By Bill Fleckenstein
Monday, April 11, 2005

As far back as April 2003, in a speech I gave at the Las Vegas
Precious-Metals Conference, I stated that gold would benefit from an
inevitable economic crisis of confidence (which could be postponed
but not avoided). Now, nearly two years later, it is my belief that
the catalysts for this crisis are here. This week I will focus on
one of them, the dollar.

Growing concerns about the dollar, in fact, prompted editorials in
both The New York Times and the Financial Times (known as the FT) a
week ago. The Times' April 2 editorial, "Before the Fall," takes
exception to the sanguine viewpoint "that foreign central banks
won't risk the losses in their dollar reserves that would occur if
they started shunning dollar-based investments." In brief, the
editorial warns, "the United States is betting that it's too big --
in other countries' eyes -- to fail."

The Times also warns that if foreign central bankers decide to stop
buying our dollars, we may need to "borrow in the face of an ever-
weakening dollar -- a recipe for higher interest rates and higher
prices." Further, it notes: "If the economy is in a housing bubble,
as many analysts believe, higher mortgage rates would pop it, with
dire results for homeowners' balance sheets and the overall health
of the economy." Banks and insurers, check your credit.

I suspect that "dollar bag holders" -- that is, the foreign central
banks -- won't feel comfortable reading this, and it will strengthen
their resolve to lighten their dollar positions. From a perversity-
of-markets standpoint, though, the fact that the editorial board of
The New York Times felt so compelled to write this editorial may
mean that the dollar bounce will continue.

Meanwhile, though I have been bearish on the dollar for some time --
and think it's headed lower OVER TIME -- I would not have spoken as
forcefully about the immediate future as the editorial did
here: "The recent rally of the United States dollar notwithstanding,
the greenback has nowhere to go but down. ... The dollar's current
uptick is just a breather in its overall downward trajectory. ...
The dollar is heading down, no matter what." I say that because, as
anyone with any experience in the financial arena knows, in the
short run, markets can do ANYTHING.

However, I think it's worth noting that The New York Times editorial
page dislikes the present administration so much that it has a bit
of an agenda. Thus, its argument MAY be seen as more political than
heartfelt economic concern.

Now for a look at the Financial Times' April 2 editorial --
"Crosscurrents Make Currencies Choppy" -- which I think will also
put pressure on foreigners left holding the dollar bag. Unlike The
New York Times piece, the FT gets at the trickier problem of the
dollar going down AGAINST WHAT: "The euro does not have much to
recommend it, other than not being the dollar."

That's emphatically what I believe. Though willing to own euros in
the past, I have owned them primarily for the same damning-with-
faint-praise reasons as described by the FT. As I have said many
times, most currency choices are just battles of wits amongst
unarmed opponents. In other words, they are only "relatively"
attractive versus each other and not genuinely attractive on their

The FT correctly points out that, although Europe and Japan could
solve their problems without their currencies tanking, "solving the
U.S. (trade deficit) problem almost certainly requires the dollar to
weaken further on a trade-weighted basis."

Lastly, the paper comes to a conclusion that I have come to -- and
that the rest of the world (including Asia) will ultimately come to:

"In truth, there are good reasons for selling all three of the
world's main currencies. But could they all fall? Yes, against
either gold or the Chinese renminbi. In recent years, gold has been
a useful hedge against the dollar, but not against the euro or yen.
Meanwhile, the U.S., Japan, and the EU would all like to see the
renminbi revalue, but so far, the Chinese are not playing."

I think that for the FT, which has been known as a very anti-gold
publication, to come to this conclusion means that people who have
not liked gold are re-examining their viewpoint. I think this will
be a positive for gold, notwithstanding the many down days it has
endured. Often, seismic shifts in thinking unfold in slow-motion, as
I have noted with respect to many of our corporate scandals.
(Editor's note: The metal is down more than 7 percent since Dec. 1.)

The combination of problems in our country's financial system (think
Fannie Mae, MBIA, American International Group, and General
Motors), our inability to do anything to strengthen the dollar, the
inherent weakness of other currencies, and our inflation rate
(which, while clearly not alarming, is running higher than any
rational person would like to see) is exactly the recipe for a much
higher gold price.


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