20Mil

Does higher demand for a currency increase its value? Typically YES, this is the case for free floating currencies where price is driven by supply and demand. Price levels are created by supply and demand during certain economic conditions. Supply and demand changes with each economic and political situation. What was once a PRICE level in a certain economic scenario may not be important or supported in a different economic situation. There are many types of news events or reports that affect the demand for a currency. These include but are not limited to: Building Approvals, Unemployment Change, Unemployment Rate, Construction PMI, Non-Manufacturing PMI, Trade Balance, Services PMI, Retail Sales, Foreign Currency Reserves, Building Permits, and some of the more important news for currency is the "Cash Rate" or the Interest rate that a currency pays. All of the listed news reports listed above act as a measure of the country at that particular time so depending on how much of an impact the particular news report has on a currency will determine if that currency is bought or sold. Typically bad news for a country at any given time is bad for that countries currency. HOWEVER, news is relevant only when it contributes to break sequences of measured moves induced by Program Trading on the larger time frames, i.e. daily and weekly. But very rarely news is capable of doing that: what can really change market direction is huge and coordinated participation from smart money and/or central banks. For instance, the S&P500 was turned higher twice in the last 3 years: the first time in March 2009 and the second time in May-July 2011 by the intervention of the FED with Quantitative Easing initiatives. News moves fundamentals and fundamentals move currency pairs! Everything I mentioned above is true for free floating currencies but really have no effect whatsoever on currencies like the Iraqi Dinar due to the fact that the Central Bank of Iraq sets its rate in order to meets its goals. Most of the time a Central Bank wont come out and say it but a Central Bank's main goal is to keep inflation under control regardless of the country. There are several fundamentals that help shape the long term strength or weakness of the major currencies. It's easy to understand that when consumers perceive a strong economy, they feel happy and safe, and they spend money. Companies willingly take this money and say, "Hey, we're making money! Wonderful! Now... uh, what do we do with all this money?" Companies with money spend money and all this creates some healthy tax revenue for the government. They jump on board and also start spending money. Now everybody is spending, and this tends to have a positive effect on the economy. Weak economies, on the other hand, are usually accompanied by consumers who aren't spending, businesses who aren't making any money and aren't spending, so the government is the only one still spending. But you get the idea. Both positive and negative economic outlooks can have a direct effect on the currency markets. Capital Flows Globalization, technology advances and the internet have all contributed to the ease of investing your money virtually anywhere in the world, regardless of where you call home. You're only a few clicks of the mouse away (or a phone call for you folks living in the Jurassic era of the 2000's) from investing in the New York or London Stock exchange, trading the Nikkei or Hang Seng index, or from opening a forex account to trade U.S. dollars, euros, yen, and even exotic currencies. Capital flows measure the amount of money flowing into and out of a country or economy because of capital investment purchasing and selling. The important thing you want to keep track of is capital flow balance, which can be positive or negative. When a country has a positive capital flow balance, foreign investments coming into the country are greater than investments heading out of the country. A negative capital flow balance is the direct opposite. Investments leaving the country for some foreign destination are greater than investments coming in. With more investment coming into a country, demand increases for that country's currency as foreign investors have to sell their currency in order to buy the local currency. This demand causes the currency to increase in value. Simple supply and demand. Problem is, again, the IQD is being held at a program rate by the CBI so supply and demand doesn't affect it's currency... And you guessed it, if supply is high for a currency (think 72 trillion M2!), the currency tends to lose value. When foreign investments make an about-face, and domestic investors also wants to switch teams and leave, and then you have an abundance of the local currency as everybody is selling and buying the currency of whatever foreign country or economy they're investing in. Foreign capital love nothing more than a country with high interest rates and strong economic growth. If a country also has a growing domestic financial market, even better! A booming stock market, high interest rates... What's not to love?! Foreign investment comes streaming in. And again, as demand for the local currency increases, so does its value. Positives for Iraq: * High Interest Rate - 6% * Potential for strong economic growth * Potential for growing domestic financial market Negatives for Iraq: *Instability * Extremely large money supply - 72 Trillion M2 is A LOT of money floating around. Remember, if supply is high (or demand is weak) for a currency the currency tends to lose value. This is the biggest problem (M2) I see for any large increase in the value of the IQD and it shouldn't be ignored. Interest Rates 101 Simply put, interest rates make the forex world go 'round! In other words, the forex market is ruled by interest rates. A currency's interest rate is probably the biggest factor in determining the perceived value of a currency. So knowing how a country's central bank sets its monetary policy, such as interest rate decisions, is a crucial thing to wrap your head around. One of the biggest influences on a central bank's interest rate decision is price stability, or "inflation". Inflation is a steady increase in the prices of goods and services. Inflation is the reason why your parents or your parents' parents paid a nickel for a soda pop in the 1920's, but now people pay twenty times more for the same product. It's generally accepted that moderate inflation comes with economic growth. However, too much inflation can harm an economy and that's why central banks are always keeping a watchful eye on inflation-related economic indicators, such as the CPI and PCE. In an effort to keep inflation at a comfortable level, central banks will mostly likely increase interest rates, resulting in lower overall growth and slower inflation. This occurs because setting high interest rates normally forces consumers and businesses to borrow less and save more, putting a damper on economic activity. Loans just become more expensive while sitting on cash becomes more attractive. On the other hand, when interest rates are decreasing, consumers and businesses are more inclined to borrow (because banks ease lending requirements), boosting retail and capital spending, thus helping the economy to grow. Yippee! What does this have to do with the forex market? Well, currencies rely on interest rates because these dictate the flow of global capital into and out of a country. They're what investors use to determine if they'll invest in a country or go elsewhere. For instance, if you had your choice between a savings account offering 1% interest and another offering .25%, which would you choose? Neither, you say? Yea, we're inclined to go the same route - keep the money under the mattress, ya know what we mean? - but that's not an option. Ha! You would pick the 1%, right? We hope so... because 1 is bigger than 0.25. Currencies work the same way! The higher a country's interest rate, the more likely its currency will strengthen. Currencies surrounded by lower interest rates are more likely to weaken over the longer term. Pretty simple stuff. The main point to be learned here is that domestic interest rates directly affect how global market players feel about a currency's value relative to another. Interest Rate Expectations Markets are ever-changing with the anticipation of different events and situations. Interest rates do the same thing - they change - but they definitely don't change as often. Most traders don't spend their time focused on current interest rates because the market has already "priced" them into the currency price. What is more important is where interest rates are EXPECTED to go. It's also important to know that interest rates tend to shift in line with monetary policy, or more specifically, with the end of monetary cycles. If rates have been going lower and lower over a period a time, it's almost inevitable that the opposite will happen. Rates will have to increase at some point. And you can count on the speculators to try to figure out when that will happen and by how much. The market will tell them; it's the nature of the beast. A shift in expectations is a signal that a shift in speculation will start, gaining more momentum as the interest rate change nears. While interest rates change with the gradual shift of monetary policy, market sentiment can also change rather suddenly from just a single report. This causes interest rates to change in a more drastic fashion or even in the opposite direction as originally anticipated. So you better watch out! Rate Differentials Pick a pair, any pair. Many forex traders use a technique of comparing one currency's interest rate to another currency's interest rate as the starting point for deciding whether a currency may weaken or strengthen. The difference between the two interest rates, known as the "interest rate differential," is the key value to keep an eye on. This spread can help you identify shifts in currencies that might not be obvious. An interest rate differential that increases helps to reinforce the higher-yielding currency, while a narrowing differential is positive for the lower-yielding currency. Instances where the interest rates of the two countries move in opposite directions often produce some of the market's largest swing. An interest rate increase in one currency combined with the interest rate decrease of the other currency is a perfect equation for sharp swings! Nominal vs. Real When people talk about interest rates, they are either referring to the nominal interest rate or the real interest rate. What's the difference? The nominal interest rate doesn't always tell the entire story. The nominal interest rate is the rate of interest before adjustments for inflation. real interest rate = nominal interest rate - expected inflation The nominal rate is usually the stated or base rate that you see (e.g., the yield on a bond). Markets, on the other hand, don't focus on this rate, but rather on the real interest rate. If you had a bond that carried a nominal yield of 6%, but inflation was at an annual rate of 5%, the bond's real yield would be 1%. Boohoo! That's a huge difference so always remember to distinguish between the two.

Yes I would have to agree with this. Seems as though he has just started to dip his toes into the world of economics and finance and doesn't know what goes where.

The FOREX market was not designed for retail traders, it is a decentralized market. You've got your Major Banks, Electronic Brokering Services, Medium/Small Banks, Retail Market Makers, Hedge Funds, Retail ECN's, and then the Retail Traders. Maybe you meant to say that retail brokerage firms were designed for retail traders? Of course Australia is a major exporter to China, which is why their currency often moves in tandem with commodities. It is also a good indicator of global growth because when China slows down, Australia's exports of Iron Ore as well as many other raw materials, slow down which affects the AUD in a negative way. Some analysts use the AUD as a leading indicator from a fundamental perspective. Many currencies have floated up from their 2009 lows after the market crash. Money left stocks as well as other major currencies to find safety in the USD and JPY as they are the safe haven currencies. What I was referring to in my original post to you was that just because a currency has a higher interest rate does not necessarily mean that the currency will never be sold. Any major bank / financial institution will weigh the risk vs reward before buying one currency against another and will not rely solely on the swap or rollover they get by buying that currency. I just can relate the IQD to AUD in any way whatsoever... It is in no way the same so I don't see what the comparison is, unless of course you are ONLY referring to interest rates. If I'm not mistaken the IQD does have an interest rate of 6% which is excellent! However, I'm not too sure how people (including major banks) are able to gain this 6% interest by holding IQD in an account. You sure as hell won't get that SWAP by buying physical currency. Warka was paying 7% but I wouldn't touch that company with a 10 foot pole. IF the IQD were to be traded on the FOREX and had a 6% interest rate it could be a good play to buy and hold. However, I doubt it will be a free floating currency ever. Most likely a managed float like they did from 2005 - 2008 where the CBI increases the value by a little as time moves on until they are at a rate they are comfortable with. Let's take a look at some of the world's highest interest rates: Egypt - 9.25% Brazil - 725% Indonesia - 5.75% Turkey - 5.75 The above mentioned currencies can be bought and sold via the FOREX market while the IQD @ 6% is not traded whatsoever. But even if it was there are still other currencies that beat the interest rate and are also bought and SOLD on a day to day basis due to different economic factors which vary from time to time. Summary: Interest rates important but is NOT the determining factor and whether or not a currency is bought or sold.

No problem Respectron. Not sure why somebody negged me either... I evened myself out right before I saw your post! LOL :D/>/> All currency is neurotic currency but they do follow a few basic principles / rules. Same with economics in general, there are rules that apply and Iraq is not an exception to these rules. Anybody interested in learning more about currencies and FOREX should check out www.BabyPips.com They have a "school" course which is 100% free and gives excellent insight into the world of FOREX. Highly recommended for people looking to expand their knowledge Thanks for posting the site MsMortgageWiz.

This is completely FALSE! The country running a trade deficit DOES NOT pay anybody anything... Where are you getting your facts from DontLop????? I read through a lot of your posts and am completely baffled by the nonsense that comes out of your mouth. Do you listen to what you say? I try to hold my tongue by not responding but you simply have no idea about economics but you try to come across as a know it all and it is pretty pathetic. OK, my rant is done, moving on... MakeCents, You have a pretty good understanding of what is going on so hats off to you for trying to bring reality to this forum. China buys US Treasuries with their surplus. Should they decide to "cash in" all of their US Treasury Bills at one time it would act as a doubled edged sword. Yes the USD would be affected as trillions of USD are brought back home and value of the USD would probably drop, however, being that US is one of the biggest (if not the biggest) importers of china's products our USD would by less goods from China which would obviously have a negative affect on China's exports. China has a budget surplus due to all of the exporting it does to the US, if exports fall then their budget surplus falls. Would they want to jeopardize this by dumping all of their US T Bills? I think not... You are right though that IF china dumped all of their US Treasuries the USD would lose value. Why don't you see this relation to all of the IQD that people cash in after a significant RV? Trillions and trillions of IQD are "cashed in" by speculators which would in turn send the value of the IQD DOWN! Amazing how you understand the concept for the USD but not for the IQD...

Exactly! Supply and demand Supply - 72 trillion M2 Demand - There would be little to no demand left for IQD as people rush to cash in their IQD for USD causing a massive sell off of the IQD which in turn would crash their currency. The CBI is not going to risk crashing their currency just to make a handful of speculators rich! A Central Bank's main agenda is to keep inflation under control, this can't be achieved by massive changes in the value of their currency whether it be up or down. Would it be logical for the CBI to re-value their currency without proper denomination in place? Why would they increase the value of their currency knowing that they needed to depend on another countries' currency? Yes the USD is used in Iraq (just like it is in a lot of other countries around the world) but a Central Bank would not rely on the USD in order to make change for everyday purchases. That sounds like some half-a$$ RV to me and very unprofessional, definitely not something a Central Bank would do for their country.

Well said. I have also brought this up many times in the past. Even an RV to $0.01 would make the smallest denomination (50 dinar note) worth $.50. Nothing significant is going to happen until lower denominations are released no matter what anybody says.

This statement which I put in bold iis not entirely true. Take the Australian Dollar (AUD) for example. It has the highest interest rate out of all of the majors but has been the weakest performing currency during the past few weeks. EUR/AUD has been on the rise for the past 6 months or so and traders / investors are obviously buying it up disregarding the rollover / swap that they have to pay. Just because a currency pays interest it doesn't mean that it will be the currency of choice if it has a significant chance or falling in price which could eliminate all gains which could have been earned by just holding the trade. In fact, in such a highly leveraged market one could wipe out an account easily if all they did was focus on buying higher yielding currencies while disregarding price action! Keep in mind that many middle eastern currencies are rarely traded via FOREX. When was the last time you traded the Kuwaiti Dinar through your brokerage firm? Most brokerage firms don't even have the currency listed with their "exotic" currencies...

No country in the world has all of their real assets / wealth backed 100% by currency in circulation... I don't know why you keep saying that they need to back all of their "wealth" with the same amount of currency? Makes no sense... Even the US dollar, which is the world's reserve currency and has the highest demand, does not back the entire wealth of our nation. 15 trillion GDP and roughly 2 Trillion in circulation... It's called Fractional Reserve Banking buddy, I'll say it again, NO country in the world backs all of their wealth with currency! Please stop spreading this nonsense, it doesn't make sense as far as economics go... Very well said. Too bad not many people here understand these simple concepts...

Great post and I completely agree with what you're saying WW. Best of luck in all of your endeavors. I'm going to add the companies you mentioned above to my watch list.

Almost forgot, as far as the articles go I thought it was only fair (and necessary) to bring those in to show my side of the coin as most (if not all) of the Gold / Silver articles brought over to this site are Gold Bullish or at the least supportive of gold. :D/> There is never only one side to the story. **However, a lot of what I posted in the first two responses was my own and you won't find them in any articles floating around on the net.

Hey WW, I guess what it really boils down to in the long run is perspective on where each of us think the market is headed in the future as that is what our own personal decisions are based off of. The second major reason for buying (or not buying) gold is the current risk / reward ratio coupled with the other available investments / trading ideas at that particular time. Personally, I'm not really a "buy and hold for years type of trader / investor" as fundamental can change at the drop of a dime. However, I am not a scalper or day trader either. I would consider myself a swing trader and most of my positions are held for weeks and sometimes even months. This is actually a pretty long time when comparing to most other FOREX traders. This is how I look at it: Even if Gold shot up to $5,000 an ounce within 5 years or so, that is only a 300% gain. I can do that in a year using my methods so I don't look at this buy and hold approach as being very profitable, especially if profits are "paper profits" and are never realized until you "cash out." Then once you cash out, what happens from there? Where does a gold / silver investor park their money once they liquidate their PMs? Surely you will need to sell precious metal holdings one day to liquidate for fiat currency... So my thinking is I learn how to make money through actual income generating investments and then if I decide to protect and INSURE my paper money I can do so via Precious Metals and / or Real Estate. I think it's important to first, have income generating investments, and second, investments or holdings to protect / insure your cash holdings. To me, they are two completely different types of investments with two completely different outcomes. Another way of putting this is let's say I have $100,000 that I use to purchase gold and silver today. Due to the fact that Gold does not pay a premium to inflation (it only tracks it) then when I cash out I am in the same position as I was before. Purchasing power has not decreased, but it hasn't increased. Therefore, it was a hedge against inflation. 5 years later "when" gold hits $5,000 and I liquidate my holdings I now have $300,000 USD (or whatever currency was used to pay for your PM holdings) that $300,000 won't be worth any more today then the $100,000 was worth 5 years before when I bought the gold / silver due to inflation. This is because Gold / SIlver doesn't pay a premium to inflation, it only tracks it. It is a form of insurance for your paper currency. In Summary: 1st Step: Find and utilize income generating investments which produce profits on a consistent basis 2nd Step: Protect / Insure your paper profits via precious metals / real estate as a hedge against inflation

There is a simple reason that over long periods of time gold under performs a broad based basket of equities available in the stock market. The price of gold fluctuates with demand that is created by fear, and the perception of scarcity. Like stocks, gold may be a good value at times, and not others. Is it really wise to invest in anything when it is at an all-time high, and driven by fear? A review of history indicates that the price of gold fluctuates wildly and has not even kept up with inflation over the past 35 years. Food for thought: Gold began trading truly freely in 1973, after post-Bretton Woods controls were removed. Since then, gold’s returned a cumulative 983% (annualized 6.8%), while global stocks returned 2,229% (9.1% annualized) and US stocks 3,552% (10.5% annualized).* Gold’s 2009 run was much hyped in the media, but even then it lagged stocks, returning 24.8% versus 30.0% for the year. Besides lost opportunity costs, what’s even more dangerous for investors? Gold historically has been a short-term timing game. Much of gold’s long-term gains have come from very short boom periods. Since 1973, there have only been six major gold booms, each lasting from 4 to 22 months—or just 15% of the total time. Meaning gold’s done less than stellar the other 85% of the time. In reality, gold is prone to short-term volatility just like stocks and boasts miserable returns over the long term—practically flat over the last 30 years, even including last year’s big gain. What will happen to Gold as the Global economy starts to recover? What will happen to Gold as the excess liquidity is pulled in by the Central Banks? Always remember: the price of stocks — via well-run companies which sell quality products that people need and desire — increase in sustainable ways over time. The price of gold fluctuates through extreme boom and bust periods that are created by either the absence or presence of fear and perceptions of financial and/or political uncertainty. To say it differently: eventually we humans figure out how to clean up our own collective ****… which will include that stench and stupidity coming out of Washington and other political power cities throughout the world. I guess whether you should be buying, holding or selling physical gold today will depend on your personal circumstances, which include your net worth and how much of it is or isn’t already backed by value-increasing and/or inflation-protecting assets; your level of suspicion against our fiat monetary system and whether it can or will be sustainable during your and your children’s life; and your level of fear for a financial doomsday scenario. “You can’t value a non-earning asset, even though you can pretend to. Gold’s valuation takes the form of a fraction: 1/n, where ‘n’ is the world’s confidence in paper currencies and the mandarins who manipulate them.” He goes on to say that, “Regrettably, ‘n’ is not quantifiable.” In a way, that is the essential mystery of gold, isn’t it. There is no dependable metric for gold’s valuation comparable to a P/E ratio for a company’s stock or the “real” yield on a sovereign bond. The total value of investment gold is tiny compared with traditional asset classes, and gold’s physical supply tends not to respond very much to price changes the way other commodities do. So, what we have is an asset whose price can change rather dramatically in response to shifts in “currency confidence” which is impossible to quantify.

I wanted to point out one more thing which is I don't actually see the FOMC raising rates any time this year. However, I do see them cutting back on the asset purchases. Regardless, what is more important is not whether or not they raise rates this year, but rather whether or not the market thinks they will raise rates before mid 2015. If they do, which is starting to show right now, then they will start to price it in gradually as the economic data (specifically the labor statistics) improves. This is Gold / Silver bearish... I'm not trying to convince anybody to sell their precious metal holdings, just pointing out another side of the coin. I'm not trying to be a "savior" of any sort, however, I hope that the points that I brought up will not be over looked because they shouldn't. Everybody has the right to do what they want with their money. Best of luck to anybody holding precious metals at this time.

Gold's Bull Run Has Hit A Long-Term Brick Wall The whole of the 2000's as a decade, in fact, was characterized by paper asset inflation (not to mention hard asset inflation) and broad currency debasement, driven by easy monetary policy, aggressive feedback loops and exacerbating macro factors. This was a goldilocks environment for gold. But how long do such goldilocks environments prevail? All good things come to an end… and most bad things too. Even as the long-term charts have gone from “unquestionable uptrend” to “question mark,” so too have the macro drivers for gold’s bull run become a giant unknown. To put it another way: As traders who respect price, the charts alone are enough to make us wary of gold. But the fundamentals are a concern too because the conditions that supported gold’s rise may no longer exist. Consider: 1) For most of the 2000?s, central banks (primarily the Fed) were openly accommodative. Now they are talking about withdrawal. 2) For most of the 2000?s, the U.S. “vendor finance” relationship with China and the Middle East was intact. That relationship could now be ending. 3) For most of the 2000?s — and actually the past few decades — U.S. interest rates have been falling (long bond bull market). That could now be ending. 4) Gold’s potential “climax run” in 2011 — reference a weekly gold chart — may have also coincided with a coordinated crescendo of global central bank intervention. If the global economy is truly recovering, this is almost certainly the case. Bullish Gold and Bearish Long Bonds? Really? Here is another funny thing: Many of those who are staunch long-term bulls on gold, are also anticipating a ferocious bear market in U.S. treasury bonds. They are rubbing their hands and waiting for the collapse of the long bond market, at which point U.S. interest rates will be forced to sharply rise. I also like the long bond short trade (and have said as much repeatedly). That is some price action we can get behind! But can you really expect sharply rising interest rates and rising gold simultaneously? To borrow a British slang phrase, “not bloody likely.”

I started the "Open Market Operations aka Currency Auctions" thread back in August of 2011 to explain HOW it is possible for Iraq to contract their money supply which would decrease the M2 money supply in order to see an RV from a grounded perspective. Unfortunately, they have not been contracting their money supply, they have actually been expanding their money supply. To answer your questions: 1) They aren't necessarily pulling the IQD back in. That is the problem, they are actually expanding their money supply as their reserves grow. All IQD is backed by their reserves which consist of USD, EUR, and GBP. 2) The only currency that they remove from circulation is currency that has excessive wear and tear. However, as the M2 figures suggest, this money is then replaced with new notes which are put right back into circulation. 3) The CBI's reserves do not consist of IQD, it is their foreign currency reserves which back the IQD at the current rate of 1168:1. However, any IQD in circulation or in the CBI's vaults are considered to be on their (CBI's) balance sheet. Meaning, they are liable for any single piece of currency that is floating around in any part of the world - "In Circulation." All we need to do is keep an eye on Iraq's M2 money supply and this will tell us everything we need to know. 70 Trillion IQD is an INSANELY high amount of money in circulation, this is considered to be a hyper-inflated currency which is the RESULT of Iraq experiencing hyper-inflation years and years ago under Saddam's rule. This DOES NOT mean that Iraq is still experiencing hyper-inflation as they are not, they have gotten it under control. However, their currency is still in a hyper-inflated state. This will more than likely change one day, whether they decrease the money supply little by little while increasing their exchange rate or if they go through with the classic re-denomination. We will never know for sure until it happens. Keep in mind, a Central Bank's main goal is to keep inflation under control, they can't do this with radical swings (up or down) in their currency. It would be devastating to their economy and will send them right back where they were before - hyper-inflation! Hope this helps...

Why did hundreds of billions of dollars (or possibly even trillions) flood the Bond market? The fact is that institutional investors and governments rushed to the 'safety' of bonds at the outset of the crisis in 2008 and withdrew trillions of dollars from stock markets in a state of crowd mentality. When broken down, the markets do not work logically - they are driven by human emotion; that is, the desire to avoid losses and to minimize risk. Despite their attempts to appear otherwise, Governments and major institutional investors are no different to John Doe and the vast majority of retail investors. At the outset of the crisis, fund managers and governments did what was safe - they ran for cover. And they did it en masse; hence the dramatic and powerful downturn as funds were pulled out of stocks. Logic would have said they should have stayed in stocks as the long term historical returns for stocks are significantly better than bonds (stocks have returned almost 6 per cent per year over the past 7 decades, adjusted for inflation). Bonds, on the other hand, offer nothing approaching that, but they do offer 'certainty'. However, there are signs now that fund managers are starting to think the crisis may soon be ending. So the big boys are now emerging from cover and are searching for the higher yields that stocks typically offer. Those trillions of dollars that have been withdrawn from stock markets which are currently in bonds must return at some time. And crowd mentality (the natural state of markets that are run by human emotion) says that those trillions will be moved in the same direction - back in to stocks. We also now know that a surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets.

FOMC Minutes Signal End of Bond Bubble by Tom Essaye Last week the market's celebration surrounding the partial Fiscal Cliff agreement was cut short by a surprise from the minutes of the Fed's December meeting. You see most had expected the minutes to be a relative non-event ... But showing you can't ever take anything for granted in the markets, the minutes offered details of a surprise rift in the FOMC about when to end its current quantitative easing program. In particular, this paragraph shook markets: "In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted." Previously it was thought that the Fed would keep their QE program through the end of the year. And while this isn't a declaration that QE is going to end imminently, the minutes were particularly surprising to markets because no one thought ending the current QE program was on the Fed's mind, much less being openly discussed and argued about. The surprise news, combined with the positive sentiment emanating from the fiscal cliff deal, sent Treasury yields to seven-month highs. As you can see in the chart below, the 30-year Treasury yield jumped to 3 percent for the first time since late April. This is important not so much because of what the Fed minutes revealed (we all know at some point the Fed will remove accommodation) but instead how the market reacted. The market reaction to this news was pretty violent. And the sharp selling that hit Treasurys (and spiked yields) is yet another sign that the top is "in" in the bond market. Now the question you should be asking isn't so much, "will bond yields rise" but instead "how fast and how far will they rise." Four-plus years into unprecedented Fed easing, last week's price action in response to the Fed minutes tells me that markets are accepting the fact that we are closer to the end than we are to the beginning. And as such they are starting to anticipate rising interest rates. Bond yields have already moved to multi-month highs based on the perception that the Fed may dial back QE sooner than expected. So we can only expect yields to accelerate once it becomes clear that the Fed is actually going to remove QE from the markets — something that by the Fed's own admission could start much sooner than is the general consensus. Yields have been kept low by the Fed's mass bond-buying program, and by their safe-haven status as a series of crises threatened elsewhere. But once the QE punchbowl is removed, holders of long-term bonds could take a beating. I hope you're not one of them.

I don't mean to come across rude so I'm sorry you took it that way, Maybe I came across this way as I see the "end of the world" scenario being talked about all of the time in relation to the purchase of Gold and Silver. Gold and Silver are always the solution in some people's eyes but this is far from the truth. Regardless of what people think, it is only a hedge against inflation. Nothing more, and nothing less. Bonds are supposed to be the safest of safe investments. At least, according to many of the talking heads on Wall Street — but nothing could be further from the truth right now! That's because long-term bonds have been driven to astronomically sky-high levels by the most reckless monetary policy in the history of the world ... which in turn has prompted the biggest influx of money into fixed income investments ever! That pushes prices higher. And since yields move in the opposite direction of bond prices, they have collapsed to miniscule levels, dramatically raising the risk that months and months of income can be vaporized in the blink of an eye! Just look at what happened in the first week of 2013! Long-term Treasuries lost roughly 3% of their value in only a few days. That was enough to wipe out an entire YEAR'S WORTH OF INTEREST, given the 3% yield on long-term bonds! Look, the world has been dog-piling like mad into bonds – Treasuries, mortgage bonds, junk bonds, emerging market bonds. We're talking about hundreds of billions of dollars in inflows, the biggest flood of money into bonds EVER. As with just about every bubble over the past two decades, it's been prompted by reckless Federal Reserve policy. Just like the bubbles in dot-coms, housing, and other asset classes, it was always doomed to burst ... And it's clear that we're seeing the classic signs that this bubble has already begun to burst right now! Remember, there is an inverse correlation between Bond Value and Bond Yield. That's why Treasury yields move in the opposite direction of Treasury bond values. So what happens to the hundreds of billions of dollars that flooded the Bond market? Well, I would imagine that most of it is going to make its way back into the stock market. A surge in demand for the US stock market does not necessarily mean that all other risk assets will be affected in the same way due to the fact that this "new surge" in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets. As you can see, money will leave the Bond market and make its way to the stock market. I'll repeat this again, this new surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets. Gold is at a 6 month low and is actually sitting on a MAJOR trend line which has been in effect since January 2011. That is 2 years! If this breaks, then Gold will more than likely fall to previous support at $1,525. Are people here ready for Gold to drop to these levels? What would be the catalyst for Gold to drop you might ask? Simple, as Bonds lose value interest rates rise. This is a positive effect for the USD in a BIG way. Money flows to higher yielding currencies / assets which is why AUD is valued so high and also the reason why people park their money in stocks, namely stocks that pay dividends. It doesn't matter if the FED wants this to happen or not, they cant stop everything. In fact, it is already happening! I'm not going to go out on a limb again and post my prediction but just keep an eye on Bonds and Interest Rates during the coming weeks / months. I see two possible scenarios unfolding this year: 1) USD recovery as the US leads the way to the global economic recovery... OR 2) If global recovery slows then we get another bearish equity market in a risk averse move with capital fleeing to safety in the USD. Either way, the USD wins... Last thing I wanted to bring up, people on here have been recently comparing themselves, in regards to when to buy and sell Gold, to people such as George Soros. This is insane! He is a multi-billionaire and obviously has a need to hedge a portion of his funds through precious metals. There is no comparison (to say the least) between small retail traders / investors and people like George Soros! None at all... Eldorado golden dreams... flashes of Yukon fever... or... just a general fascination with the "barbarous relic." Whatever might compel you to keep tabs on gold, one thing is for sure: You may have not considered a few things. Gold above $1,000 can't really be used to rationalize anything other than speculation. Assuming, you don't already have some stored away as insurance. That is really the correct purpose. Just know that it is a hedge against inflation, but it won't pay a premium to it, it will track inflation, but won't pay a premium over it. People actually think Gold is an investment, it actually is NOT an investment. You don't hedge stocks against gold. Gold does not hedge against market downturns, believe it or not, but this can be seen time and time again. Peter Brandt, famous commodity trader puts it like this, "speculators trade price and price alone, falling in love with an underlying asset represented by price and price only is a fool's game." Speculation is not bad, but die hard speculators that think a dormant commodity that has zero growth potential outside of price is an investment, you're barking up the wrong tree. Example: A gun, like a bar of gold, is inert, its passive. You have to do something with the gun to create value, and just like Gold it should be seen as an insurance policy you wish to never use. Right now, I personally wouldn't touch Gold! Look at a 10 year chart! 11 year Gold channel support being tested! Whether it bounces up to $2,000 who cares, at this time why worry about it? Put it this way, the longer ago you bought gold the greater the chance you'll have that you still might get a return. WHY? It is out of WHACK! Typically, from a historical perspective, markets that are price movement based that are out of "whack" tend to get back in balance. So, let's say price goes back to $1,000 an ounce again and you bought at a little over / under $1,000 an ounce, you are teetering against break even. What if you buy now? Risk / Reward ratio is nowhere close to where it was in the past decade. I would like the Gold bugs to ask themselves what is it that has you fixed on Gold? Why are you in it? If it's about trading price movement does gold have to be the market? What is it about stocks, for instance, that are different than an inert commodity. Companies that produce profits, pay out dividends, etc... Why Gold? My Theory: We are going to break below the 11 year channel support line and are going to stay there for quite some time. If you're wondering where this support number is it is roughly $1,660 an ounce. So we are currently at the edge.... Let me also ask you this, is it possible for the USD to collapse say this year? How about next year? Or the year after that? Simple answer is NO! What would replace the USD as the reserve currency? Nothing comes close at this time... A Reminder of U.S. Strength… From My Visit to The Dominican Republic By Dr. Steve Sjuggerud Tuesday, January 8, 2013 Greetings from the sunny, windy Dominican Republic… I've been in the Dominican Republic for a week. I've spent hours traveling the roads, stopping in small towns along the way. And I've paid for everything in U.S. dollars, no questions asked. You might think you'd need Dominican money while in the Dominican Republic. But you really don't… U.S. dollars work just fine here. This trip reminded me that the U.S. dollar is clearly the most important currency on our slice of the globe. And I don't expect that to change anytime soon. A U.S. dollar crisis is certain someday… but that day is not today. The U.S. dollar is headed for a major crisis at some point. This is certain. The U.S. government is already broke and digging a deeper hole daily. The only question is: "When will the big crisis arrive?" My short answer is, not in the next couple years. Let me explain briefly, starting with my trip to the Dominican Republic… For the entire trip, I haven't exchanged U.S. dollars for a single Dominican peso. I've done the same thing recently in Costa Rica, Nicaragua, Belize, Mexico, the Bahamas, and other Latin American/Caribbean countries. The U.S. dollar works just as well. Nobody ever says, "No, U.S. dollars are not accepted here – you must pay in Costa Rican colones." When you think about it the other way around, you see just how important the U.S. dollar is to this region… For example, can you imagine going to your local grocery store and paying in Dominican pesos instead of U.S. dollars – even though you are in the United States? Can you imagine using money from a country that most people have never been to? That's what people in the Dominican Republic are doing today… I talked with two successful Dominicans. Neither has left the Dominican Republic before… "It's very hard to get a visa to leave the Dominican Republic," they told me. "It's very hard to get permission from the government to leave. The government thinks that if we leave, we will never come back." Wow. And I thought we had it tough in the States. Successful Dominicans can't even leave their country. Ouch. Dominicans happily accept U.S. dollars, though. And it's not just here…The U.S. dollar is the most widely accepted unit of money in the Americas… and to a lesser extent, the world. Being the world's "reserve" currency provides the United States with an enormous advantage – we can print the world's currency. I believe the U.S.' ability to print the world's currency will buy the U.S. government a lot of time – years – before a true debt/currency crisis would happen. Think about this… what would replace it as the "reserve" currency here in the Dominican Republic? The euro? The euro is actually accepted here in the Dominican Republic, too. But Europe's problems are just as bad as those in the U.S. Gold? Hard to imagine right this second. China's currency? Not for decades. What about a currency from some other country in the Americas? As mismanaged as the U.S. dollar is, the currencies in many of these countries are treated even worse. For example, Mexico had its own currency crisis in 1994. Inflation grew to over 50% by the end of 1995. Even after things settled down, Mexico's inflation has doubled U.S. inflation since 2000 (4.8% a year versus 2.4%, respectively). Argentina is a similar story. Inflation hit 40% in 2002, as the Argentinian peso collapsed. Post-crisis, inflation in Argentina still hovers around 10%… four times more than it is in the U.S. Here's a look at the year-over-year inflation numbers since 2000 for several other key countries in the region, as well… Year-Over-Year Inflation Since 2000 Country / Inflation Dominican Republic / 11.7% Nicaragua / 7.9% Costa Rica / 9.3% Venezuela / 22.4% Colombia / 5.3% United States / 2.4% This trip was a great reminder of just how much the U.S. dollar is still king. A U.S. currency crisis is certain someday. As I said, the U.S. government is broke AND digging a deeper hole daily. But I believe the day of reckoning won't be here tomorrow. Thanks to the "Global Bernanke Asset Bubble," we have time – possibly years – to make a fortune in U.S. stocks and real estate… before the dollar's day of reckoning arrives. Good investing, Steve

Ahhhh.... OK I see then, so because I made a "prediction" and I was wrong then I am also wrong on this. All the best WW. You obviously know what you are talking about and are right so we will leave it at that. Good luck with your Silver investment.

http://www.moneyandmarkets.com/2013s-most-important-market-51173 Don't say I didn't warn you... Just because the FED wants something doesn't mean they can control it. Interest rates will rise and it is already starting to show. I have been warned months and months ago, just like I am warning some now. Feel free to believe what you want. The USD is at a multi-year low at this time regardless of the doom 'n gloom hype that flows so freely on the net.

Hey WW, Hope you enjoyed the Holidays. I wanted to bring this to your attention as I am on the other side of the fence when it comes to US and the rise in interest rates. You can see that the benchmark yield on the 10-year Treasury Note has exploded out of a multi-month range. It hit 1.97% earlier yesterday morning, the highest since last May, after breaking a downtrend that goes all the way back to February of 2011! How Treasury Yields Affect the Economy: As Treasury yields increase, so do the interest rates on fixed-rate mortgages. This makes it more expensive to buy a home, so demand for homes decrease, and therefore so do the prices of homes. This, then, has a negative impact on the economy, and can slow GDP growth. Higher Treasury yields mean that the Treasury Department will be forced to pay a higher interest rate to attract buyers. Over time, these higher rates can start to increase demand for Treasury products. That's why higher Treasury yields can increase the value of the dollar. **Folks, keep in mind the affects it would have if USD interest rates rose even by the slightest amount... Don't think the FED is actually going to wait until 2015 to do this either. Just follow the charts and right now Treasury Yields are on the rise. I wonder if Thursday's FOMC minutes was any type of coincidence? :)/>/> There is an inverse correlation between Bond Value and Bond Yield. That's why Treasury yields move in the opposite direction of Treasury bond values. So if we are getting ready for the Bond Bubble to pop, then it would be safe to say that we should get ready for the USD to rally. People have been talking about the Bond Collapse for quite some time but keep an eye on the charts. I've been hearing about the "Bond Bubble Collapse" for at least a year now from very credible and reputable financial research firms. Make no mistake, BONDS will collapse, it is only a matter of when.

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Gold recently broke it's Daily Trend Line which has been in effect since May 2012. It is currently testing it's Weekly upward Trend Line which has held strong since January 2011 which is basically 2 years. If price closes below the Weekly TL (roughly 1,625) on a "weekly" candle then this could be a very bearish sign for Gold from a technical stand point. Gold is also now below all major moving averages including 200 SMA and 200 EMA. This also gives a bearish outlook from a technical stand point. Another thing to consider is that AUD, NZD, GBP, and EUR have ALL confirmed bearish signals (candle formations / price action) on the Weekly charts after reaching MAJOR resistance areas signifying downward movement against the USD in the coming weeks / months. My theory is that the fiscal cliff is going to be the major catalyst to send risk assets (US Equities, AUD, NZD, Gold) down during the coming months as money flows to KING USD due to safe haven flows. Remember, the following charts are only Technical and not Fundamental. **One thing to keep in mind: Now that Ben Bernanke has tied the new QE to the "6.5% Unemployment Rate" it means that positive US data is now dollar positive and NOT RISK positive. See, before the latest QE announcement positive US data was "risk" positive - think US equities, AUD, NZD, GBP, EUR, etc...and USD negative due to the fact that the market kept expecting more and more printing from the FED with bad US data figures. Now that they have made it clear that they will not print more money once this certain unemployment figure is reached (6.5%) positive US data will be positive USD. This correlation can be seen from this past Thursday's US Data (GDP, Existing Home Sales, and Philly Fed Manufacturing Index) which came in MUCH better than expected. All in all, I am BEARISH in the short to medium term for risk assets including GOLD and SILVER. However, long term, Gold and Silver should perform well due to the fact that most of the money that has been printed by the FED during the past 5 years has not really made its way into the economy as most of It is still sitting on the Bank's balance sheets. Definitely not the time to be buying precious metals, probably best to wait until the dust settles after the fiscal cliff debacle is over.

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