Monday, November 8, 2010

Currency Wars: Gold/Silver vs. US$ vs. Euro

While there wasn't much of a downdraft in stocks today (the NASDAQ was positive at the close), currency watchers had plenty to occupy their attention as the dollar appreciated against the Euro, though the big winners were Gold and Silver (the shining star of the past two months).

The Fed offered up $6.5 billion to Wall Street in the form or a POMO, but the boys said, "oh, no" and continued their selling of overpriced stocks in the face of Euro woes.

The European answer to Ben Bernanke's blind monkey monetary policy (QE2) was expressly Continental. As Ireland, Greece, Portugal and Spain teeter on the brink of insolvency, the European response was a curt, "you're not so bad; we're worse," as the race to the bottom of the currency abyss accelerated to a manic pace.

The big beneficiaries were manifested in pronounced moves in gold and silver, the former reaching new all-time highs, the latter continuing it's crusade against anything fiat. At the end of the day, owning gold, silver or dollars was the correct bet, against the wishes of Mr. Bernanke, and, at least for today, a complete repudiation of his overt, repulsive monetarism.

One outlier worth note was Bank of America (BAC), which defied all logic and sound investing strategy by posting another in a series of gains. Shares of the nation's largest mortgage lender finished up 24 cents, to $12.60, equaling its close on October 14. Shares had sunk as low as 11.16 (October 25), but have since found new life, though the stock is so heavily shorted, it may be merely a shaking out of weak hands. The stock gapped up at the open and made its best advances in the afternoon, trading as high as 12.73 before settling lower.

Oddly enough, the euphoria from last week, spurred by the Fed's announcement that it would monetize up to $900 billion in debt over the next eight months and sweeping victories in the House by the Republican party, seemed to fade in the light of the new week. Doubters of Fed policy are numerous and many have loudly decried Mr. Bernanke's QE as the wrong prescription for the US and global economies. Among them, US Representative Ron Paul from Texas, who expressed a view that the Fed would fail on its own and that gold should compete with Federal Reserve Notes as currency (see video below).

Additionally, Paul took aim at entitlements on his congressional website, calling for a rejection of the welfare state and offered a position to make Social Security voluntary.

Dow 11,406.84, -37.24 (0.33%)
NASDAQ 2,580.05, +1.07 (0.04%)
S&P 500 1,223.25, -2.60 (0.21%)
NYSE Composite 7,782.20, -18.46 (0.24%)

With the first downturn in the last seven sessions, declining issues paraded past advancers, 3437-3012. New highs led new lows, 691-53, so there's obviously still a good deal of speculation continuing. Volume, however, returned to moribund levels that prevailed prior to last week.

NASDAQ Volume 1,824,770,375.00
NYSE Volume 4,468,926,000

Oil continued to surge, despite the higher dollar, gaining 21 cents, to $87.06, on the front-end contract. The latest print on gold was up $15.30, to $1409.40, while silver amazed again, gaining 95 cents, to $27.71.

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