Gold to explode

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In very very near future Gold is set to explode……….. Dollar is set to crash!!!!!!!

Why Dollar is set to crash?

You have been reading front line war between China and US in media but the reality is different..

US wants China to revalue Yuan and China is in denial.

But, that is to fool the public at large or in other words to appease voters in public.. ..but their real intentions are otherwise

When US has been claiming that Yuan is undervalued, statement implies that dollar is overvalued and needs correction badly but politicians would not say so!!!!!

Same is way, Chinese politicians do want Yuan revaluation but they don’t want to face fury of citizens…

Because short term consequences are negative for both the economies

How?

FOR United States

Let us think

If US allows dollar to fall or make an arrangement like one with China to persuade them to dump tens of billions of dollars from their giant coffers to ensures dollar’s inevitable crash

Short term Consequences:

With fall in dollar, price of everything under the sun will rise.. be it commodity.. be it precious metal… in short Inflation would rise imminently to very high level

And, you know, no politician want to take a blame for hyper inflation. they always want to blame it on others…

But, there are long term benefits associated with it

US economy is in dire situation. Like when your Personal Computer does not function even after several tries… you have two options… first try to reboot it and then in worst case format it.

US has no option but to try both one after another.

To ensure, economy comes back to pre crisis level….. manufacturing and services industry must start working and this time only precrisis level economic activity would not help because massive accumulation of debt by FED, by Treasury in last 2 years can not be repaid with that. The official debt is now at $ 12.78 trillion. Close to 100% of GDP.

Or in other words let me tell you, US needs to rebalance growth model from consumption led to a balanced where in export, manufacturing and industrial activity contributes higher % of GDP vs services

Or in other words from trade deficit to trade surplus i.e. more exports then imports

But, for that US has to compete in the world markets and the primary hurdle in fight is Dollar

Unless Dollar reduces to competitive level in world markets, US export industry can not function.. and policymakers know it well

Remember.. in most of the countries more than 50% population is employed by small and medium sized industries

Other benefits
US can inflate out its gargantuan debt

For China
If China allows Yuan to appreciate

Immediate negative consequences would be …. exporters on thin margin will have no option but to shut their shops and that will increase unemployment and politicians does not want to take blame on them

But benefits are many for Beijing
First
With appreciation in Yuan, China would be able scoop up natural resources at lower cost from across the world … thus marginal higher export cost from appreciation in Yuan can be set off and resultant effect would be minimal…. thus even with marginal appreciation its exports led model will have minimal effects

Second
Chinese banks have lent record loans last year, more than $1.3 trillion apart from other stimulus packages declared by Govt amounting nearly $600 bn…. China has been fearing of higher inflation

By allowing currency to appreciate… china can damp the inflation. Imports of everything will become cheaper from raw material to Ipads. Hence, China can increase domestic consumption by marginal increase in value of Yuan.

Third
China has completely opposite growth model compared with US. Consumption and services have less contribution in GDP vs manufacturing and other industrial activities.

Post Crisis, China has learned very hard way not to rely heavily on external growth, only. Domestic consumption is inevitable.
China has taken all steps to ensure to stimulate it.

By Yuan appreciation and wage increases China can achieve its goals and policymakers have acknowledged it at several occasions.

Isn’t it a win- win situation for Chian and US?

But, where are the symptoms??

Feb, 2010… first time China had trade deficit in several years and a month earlier US had first trade surplus in many years

In larger picture
Consider that US represents western developed world and China represents eastern and other developing nations…

Because, when dollar is hammered down …. rest currencies would eventually slid to remain competitive and

when Yuan rises…. rest developing nations would quickly follow the suit

Because if history is any guide
The won rose five times as fast as China’s currency in the 12 months after officials in Beijing last relaxed the foreign- exchange regime in July 2005, data compiled by Bloomberg show. Singapore’s dollar climbed three times as much, the rupiah five times and Malaysia’s ringgit twice as fast

THEREFORE BE PREPARED FOR FALL IN DOLLAR, FALL IN WESTERN CURRENCIES…… RISE IN GOLD, SILVER AND DEVELOPING NATIONS CURRENCIES.

Best Luck

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

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3 responses »

  1. I think in terms of macro level analysis you are focusing more on china which is good but along with that please try to guide us on micro level………. Because by using micro analysis people who read your blog like me can actually use it in practical manner……….

  2. If the stated value, of “Federal” Reserve notes, declines enough with respect to copper and nickel, the 1946-2009 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.

    The April 13th metal value of these nickels is “$0.0614575” or 122.91% of face value, according to the “United States Circulating Coinage Intrinsic Value Table” available at Coinflation.com.

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