(from
USAGOLD.com)
--by Peter A. Grant
March 21,
a.m.(from
USAGOLD.com)
--
Gold has moved within $10 of its
all-time high in early New York trading on Monday as the dollar fell
to new 15-month lows. The dollar index has negated support marked by
the November 2010 low at 75.61. Today's action leaves the DX just
about 6% off the all-time low at 70.67 from March 2008. The 74.16 low
from November 2009 offers intervening support. [chart]
Oil
prices have been driven higher as well, amid an escalation of UN
sanctioned military intervention in Libya. However, there is already
confusion as to the exact role of Western forces. Clearly what has
transpired since the UN authorized "all necessary measures"
short of a foreign occupation force, is much more than just a no-fly
zone. The Arab League, China and Russia have already voiced
objections to the scope of the air-strikes against forces loyal to
Libyan strongman Muammar Gaddafi. Ongoing uncertainty in Libya -- and
the region as a whole -- has pushed oil prices higher, raising
inflation risk and threatening to derail nascent economic recoveries
in the US and Europe. Gas prices in the US rose another 7¢ last week
on average and are up 76¢ from a year ago.
The Japanese
nuclear disaster has prompted countries across the globe to rethinks
their nuclear programs. The German government has already pledged to
mothball their seven oldest nuclear plants, reducing their nuclear
generated electric capacity by one-third. China, which the FT says
accounts for 40% of the world's planned reactors, has suspended
approvals for nuclear power plants throughout the country. Many
have suggested that the US nuclear program, which had just recently
started to come back in favor, is now probably politically dead. With
nuclear power accounting for about 13% of global electricity
generation, significant scaling back of that percentage is going to
leave the world increasingly reliant on fossil fuels. Coal, gas and
oil already combine to fuel the generation of more than two-thirds of
the world's electricity.
A sharp rise in the price of fossil
fuels is the last thing that Japan needs right now. Clearly higher
energy costs will make rebuilding more expensive for a country so
import dependent, and already saddled with a massive amount of debt.
Heightened global competition for increasingly scarce natural
resources is likely to raise the level of geopolitical tensions as
well. While a strong yen could well help Japan in its necessary
acquisition of natural resources, it would simultaneously make
exported Japanese manufactured goods more expensive -- and therefore
less desirable -- on global markets. It became clear last week which
side of this delicate balancing act the Japanese government is
inclined to err on as the BoJ, along with the help of the rest of the
G-7, intervened aggressively to squelch the yen's rise. It seems
nobody wants a stronger currency these days, even when it may in fact
be beneficial. That bodes well for gold, the classic hedge against
endemic fiat currency depreciation.
Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.
Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.