Mar 30 2009
Today’s Gold Price and the U.S.$
Please help me by commenting on this post if you have a rational answer as to why the U.S.$ is stronger today in the face of The White House’s apparent position vis a vis Chrysler and GM – see my post earlier this morning. An article in the last few minutes titled ‘Gold falls as stronger dollar reduces metal’s appeal’ suggests that gold’s appeal as an investment alternative was reduced today as the U.S.$ rose on currency exchange markets “as investors fled equity markets amid renewed fears over the auto sector”.
I have great trouble following the logic. I would have thought – setting gold and its pricing aside – how the failure of either Chrysler or GM could be other than negative for the U.S.$. I have concluded that the people who write about these things must think in terms of ‘hour to hour’, may not know who Warren Buffett is, and certainly don’t understand his investment philosophy.
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The best ‘explanation’ for $ strength in relation to other paper money currencies I have heard came from Nariman Behravesh, Chief Economist at IHS Global Insight, at their annual conference last December. Here it is:
THE DOLLAR IS STILL THE BEST LOOKING HORSE IN THE GLUE FACTORY.
This will be an important subject to revisit after the G20 Conference taking place in London now. One important potential development being discussed is the revival and expansion of IMF Special Drawing Rights (SDRs) as an important quasi currency and loan security.
I heard George Soros, an advocate of SDR expansion, speak on the subject at the LSE yesterday. Here is the link to a podcast of the lecture:
http://odeo.com/episodes/24386149-Lecture_George-Soros-LSE-What-can-do-G20
Soros also makes the point that misconceptions are not uncommon in markets. Markets tend to distort reality.