Currencies 101

7 February 2008

I'm not a currency trader, but I am a Canadian. I think the present currency trends are pretty clear.

The commodity currencies (such as the Canadian dollar) are down on the recession trade.

The (low interest) carry trade currencies (the Swiss Franc and the Japanese Yen) are up, more or less for the same reason (the unwinding of the carry trade).

A look at the charts for the Swiss Franc (XSF) and Japanese Yen (XJY) pretty well sums it up. I'm happy to hold my recently appreciated Canadian dollars (though the Toronto Gold Index has been horrible due in part to the currency trend), but if I were Swiss or Japanese now, I wouldn't buy Canadian dollars so long as recession fears are driving the market.

Once the focus returns to inflation (no one has paid attention to inflation since Paul Volcker temporarily resolved the problem in the early 1980s), Canadian dollars and the other resource currencies should have their next leg up, along with the precious metals. But inflation has been raging for years and nobody has paid much attention so far.

So how long will it take citizens, politicians, central bankers and investors to notice that inflation is a very big problem?

If we can live surrounded by inflation for as long as we already have without recognizing it for what it is, it strikes me as entirely possible that we will be able to continue ignoring it for some additional time to come. At some point, however, it will no longer be possible to live with inflation day in and day out without discerning that it is not benign. When that time comes, I predict that our thinking will change dramatically....

For those interested in the Swiss Franc specifically, here are links for all my entries concerning the Swiss Franc:

1. Canadians, Buy the Swiss Franc Now!

2. The Swiss Franc Continues To Climb in Canadian Dollars.

3. My first compliment from Fleck.

4. Currencies 101.

5. Another Swiss Franc Buying Opportunity for Canadians.

6. All You Need To Know About Global Money Supply in One Place.

7. The Swiss Franc Is Still Strong.

8. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.

9. Gold is Better Than the Swiss Franc.

10. Swiss Franc Alert.

11. Gold Isn't Gaining All That Much... In Canadian Dollars!

Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!

August 5, 2008: As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.

Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.

In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).

October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.

While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.
_

Gold Charts from 1980 to the Present – and Everything Else

3 February 2008, updated 29 July 2008

I have learned from Sitemeter that many visitors to my site are looking for specific financial charts - most commonly, gold price charts from 1980 through the present.

For those searching out such information, let me recommend the gold standard of charting services, if you will, Stockcharts.com.

Many charts are free, and you can create more detailed and larger charts of your own design by joining and paying a reasonable annual membership fee.

Stockcharts.com doesn't do everything. For example, inflation-adjusted charts are not available. But Financial Sense Online has much of this information. In particular, look for the work of John Williams on this site. Mr. Williams also operates his own site (Shadow Government Statistics), where you will find alternative analyses for economic data of all kinds.

For gold, silver and precious metals charts in particular, Kitco.com is clearly the definitive place to go.

For hard commodities, you won't go wrong with Mineweb, as this Uranium chart page illustrates.

For current futures price quotations, including currencies, metals, energy products and the agricultural commodities, be sure to visit TradingCharts.com.

By the way, an old favourite "everything at a glance" site for energy price trends is WTRG Economics.

If you are looking for innovative analytical charts (as illustrated above), then be sure to visit Adam Hamilton's site, at Zeal Speculation and Investment.

And, last but not least, don't miss Michael Hodges' "America's Total Debt Report" for one-of-a-kind charts on the incredibly indebted condition of the United States relative to virtually all of the world's other leading nations.

Happy charting!
_

Real Estate Mania Persists in the Face of Disconfirming Evidence

31 January 2008

I recall that in the spring of 2004, while Susan and I were travelling through Los Angeles, the bus stop benches were plastered with advertising for "get rich through real estate investing" conferences featuring Donald Trump, Robert Kiyosaki and Anthony Robbins.

I am shocked to learn that these conferences are still taking place, with the next one coming to Toronto on March 29-30, 2008. The usual suspects will be present - including the kingpins of the long-deflated real estate bubble and other new age icons - Donald Trump, Anthony Robbins, George Foreman, David Bach, the Teachers from "The Secret," and an additional "all-star line-up," including Jack Canfield, Alan Greenspan(!?!), and Magic Johnson.

What? This is still happening in 2008?

I must be out of touch, because I don't get it. (I'll grant you, Canada as a location still makes sense. While we lack the United States' spiralling international debt, our central bank governors persist in inflating the Canadian money supply at no less frenetic a pace than our mania-prone cousins to the south.)

Since 2004, real estate investors have been brutally slammed. And now these gurus are going to tell us... get this... what again??? How to make money in real estate in 2008???

I don't have much more to say on this forlorn subject, except that the bus stop bench advertising has now changed.

What is being advertised in 2008?

Foreclosure assistance.

Trump and Robbins may still be running real estate wealth conferences (Kiyosaki pulled out of that game in 2005), but the bus stop benches are now telling a different story.

I would caution against following the pied piper on this particular adventure.

Deconstructing the S&P/TSX Global Gold Index

27 January 2008

I have found a new way to look at the S&P/TSX Global Gold Index (which I shall refer to by its StockCharts symbol, SPTGD, for convenience).

The SPTGD index consists of 25 precious metal mining companies traded on the Toronto Stock Exchange (TSX). Those companies and their current share prices are listed here.

The rules for including a gold mining stock on the SPTGD index are as follows:

- Listed for at least 12 months on TSX, NYSE, NASDAQ
- Included under the Global Industry Classification System (GICs) Code 15104030 – Materials - Metals Mining – Gold
- Minimum float market cap of US$300 million based on three day VWAP
- Average daily dollar value traded of at least US$1 million for the two months preceding a security’s consideration as a candidate for inclusion
- Liquidity ratio (dollar value traded/average float market cap over past 12 months) of at least 0.30
- No more than 25 non-trading days over the past 12 months

The S&P/TSX Global Gold Index is calculated based on a modified market capitalization approach, as follows:

"On any given day, the index value is the quotient of the total float-adjusted market capitalization of the index’s constituents and its divisor. Continuity in index values is maintained by adjusting the divisor for all changes in the constituents’ share capital after the base date. This includes additions and deletions to the index, rights issues, share buyback and issuances, and spin-offs. The divisor’s time series is, in effect a chronological summary of all changes affecting the base capital of the index. The divisor is adjusted such that the index value at an instant just prior to a change in base capital equals the index value at an instant immediately following that change."

At face value, things look pretty good for the SPTGD index, as it is the best performing index of the current (albeit so far brief) millennium on the TSX exchange since 2001:


In fact, the TSX is the best global exchange for financing mining exploration and development, as the following chart reveals:


Here is the problem.

The ascending Canadian dollar and the vagaries of the mining business have caused the SPTGD index to underperform its rival, the AMEX Gold Bugs Index of unhedged gold mining companies (the “HUI”) by a dramatic margin. I have been writing about this problem for some time now.


This is all the more striking, as the HUI index for the most part consists of many of the same gold mining companies as are listed on the SPTGD index (link).

The differences are (1) the HUI index consists of a smaller number of capitalization weighted companies, and (2) the SPTGD index is priced in ascending Canadian dollars, while the HUI index is priced in collapsing US dollars.

The Canadian dollar has climbed almost exactly 60% against the US dollar, since reaching its early 2002 low of $0.6192 US.


But this is the shocker…. The SPTGD index declined 74% against the HUI index from its relative peak in late 2000 to its relative November 2007 low. By any measure, that is a dramatic collapse in relative value. That is, the multiplier required for the November 2007 low on the SPTGD index to recapture its (original high) December 2000 value is a factor of 3.8 – dwarfing the gains made by the Canadian dollar.

Here is the rub – US investors, holding weakened US dollars, who have invested in the HUI index since the last quarter of the year 2000 have done far, far better than Canadian investors who have held the SPTGD index in Canadian dollars over the same period.

To put it in the most dramatic terms possible, the HUI index, admittedly in weak US dollars, outperformed the SPTGD index by a factor of 425% for the period December 2000 through November 2007. This while the Canadian dollar gained only 60% during roughly the same period. In this chart, we are looking at the same phenomenon as before, just in reverse:


That is, the HUI gained a relative 425% for US investors while their currency fell only 38% against the Canadian dollar. Subtracting the 38% currency loss erodes the HUI gain by 162 percentage points, but leaves US HUI index investors still with an absolute gain of 263% against Canadian SPTGD index investors during more or less the first decade of the present millennium – this subtracting all influence of the ascending Canadian Loonie.

To sum it up, in Canada, with a soaring Canadian dollar and the world’s best climate for funding mining ventures, there has been no relative advantage of investing in the SPTGD index over the course of the present decade to date. Far better to be an American, holding a collapsing currency, but investing in the HUI index.

There is no other way to look at it.

Now that the Canadian dollar has reached parity, and probably topped out against the US dollar for some time to come (as the “carry trade” currencies, such as the Swiss Franc and the Japanese Yen now find favour in international currency markets against the backdrop of a looming global recession), will Canadian gold mining stocks find any greater traction compared to their American-listed counterparts than before?

My short answer is… “I'm not sure.”

The trend continues to favour the AMEX Gold Bugs Index (the HUI) against the S&P/TSX Global Gold Index (the SPTGD) until it doesn't.

Eavesdropping on the Gold Sceptics

22 January 2008

It is always interesting to learn how we are perceived by others. I have this opportunity at times provided by Sitemeter, which allows me to study how visitors travel to and from my site.

A very interesting series of visits occurred through a link to my site on the "AppleInsider" Forum. The topic of discussion follows below:

"What do you think is a good investment now?

---

"It looks to be kind of a dangerous time to invest - if you invest in the US what if the dollar keeps on dropping? If you invest overseas what if the dollar rebounds? What about recession, inflation, rising interest rates, bad loans and problems borrowing money as a result (even for good companies)?

"I am looking at commercial REITs - they seem low now, provide income, and have average returns greater than the stock market. The only stocks that look like good buys right now are Cisco and Starbucks.

"What are you investing in/thinking of investing in?"

---

One participant chose to cite my most-commonly-visited article on the $5000 inflation-adjusted long-term gold price target. Citing my article, the person commented as follows:

"Gold!

---

"http://gullarsahir.blogspot.com/2007/07/golds-1980-high-think-5000-per-ounce.html

"Quote:

'The implication of this recalculation is that by normal cyclical fluctuation alone, it is reasonable to expect the current gold bull market to top out somewhere higher than $5000 per ounce.'

"Now, there are a lot of reasons why this won't happen...

"One being that it starts becoming child's play to mine it our of the oceans once it gets above $1,200/ounce. Which was a similar problem back in the 80s which is why it never broke $900. Well, that and a few other issues."

---

As I am not a participant at this site, I was not able to reply directly, and believe me, there is much I could have said.

Fundamentally, however, the most pleasing aspect of reading over this discussion was the confirmation of broad scepticism pervading the investment community with respect to the wisdom of investing in gold (despite gold's being essentially the present decade's best-performing investment sector so far - apart perhaps from energy and several other of gold's cousins and extended family members).

Also of interest was the contributor's primary argument, that when gold becomes sufficiently valuable, much more will be produced, perhaps we'll even begin to filter it out of the oceans!

I cannot comment on ocean filtration recovery of gold. I am not an expert. It is a "for real" technology, as I discovered with the help of Google, which yielded the following link on Science Direct, a reputable professional scientific site.

New Scientist has considered the matter of gold in sea water, and cautions us that no one will grow wealthy by extracting one gram of gold per 100 million tons of sea water: "The presence of gold in sea water has been known since 1872 and has, since that time, motivated much hope of financial gain. But as analytical techniques have improved, the estimates of the amounts in the oceans have decreased dramatically. These most recent estimates are three orders of magnitude lower than those made before 1988. There may indeed be gold in the oceans, but not enough to make anyone rich."

However, one matter of which I am quite confident is that the folks at Barrick and Newmont have devoted some thought to how much gold can be recovered over the next several years, by what means, and at what prices.

The bottom line is that there is no system for producing gold, no how matter cost-effective, which does not involve extensive lead times, and only a very gradual increase in our total store of global gold supplies.

In short, all of the mined gold in the world - approximately 140,000 tons above ground (with an additional known or inferred 50,000 tons underground, half of which is in South Africa) - will soon fill an elongated cube or block the base of which is the size of a single tennis court. Gold mining adds about 2% per year to the total mined supply. It takes ten years and often much longer to commission and bring a new gold mine into operation (assuming the mine is not confiscated by greedy governments, etc.) At today's present production rate of less than 4,000 tons per year, we will still require 20 more years to complete our first-ever tennis-court-sized block of gold. Today's above-ground gold is presently valued at approximately $4 trillion US dollars, about double its value of only 4 years ago, and more than triple its value in 2001.

No matter what you do, you will not be able to increase the world's minuscule supply of gold by a very great amount. What you must reckon with, primarily, is the potential of increased demand for gold as the following asset classes decline in value: currencies, equities, bonds, real estate, manufacturing capacity and manufactured goods.

That is, the real issue potentially driving the value of gold is not the prospect of minimally or greatly increased supplies of gold, as the author at the AppleInsider Forum suggests, but of greatly increased demand for gold as alternative asset classes fail as viable investments.

We presently live in a world in which gold and precious metals taken as a whole represent far less than one percent of the value of all capital assets. For example, all of the gold stocks constituting the Amex Gold Bugs Index, at about $160 billion in market capitalization, represent approximately 0.3 to 0.4% of the market value of all the companies in the world, estimated by Wikipedia at about $51 trillion US dollars as of March 2007, and less than the market capitalization of Google ($182 billion today), even following one of the steepest slides in US stock valuations in many years.

So long as people are not buying gold because it might cheaply be separated from ocean water at some future point in time, one can rest assured that all of those who might one day desire to own gold are not presently contemplating doing so.

In short, every indicator I can see presages a gold price much higher than today's value.

$5000 gold is many years away, of this there can be no doubt. But $1000 gold does not appear to be a distant vision at all - particularly following the US Federal Reserve's most recent currency devaluation - attributable to today's dramatic 0.75% cut in its federal funds lending rate.

Continued rate cuts assure ongoing devaluation of all "paper" currencies, and sustained reinforcement of the market value of gold and of gold mining shares.

Take my advice. The prospect of scientists producing gold from seawater will not erode the value of your long-term investment in gold. Have much more fear of central bankers and government leaders continually undermining the value of your local currency - whatever it might happen to be!

Pre-Crash Talk and Behaviour?

18 January 2008 (updated 21 & 22 January 2008)

I feel nervous about how our political and financial leaders are presently talking about the economy.

After spending the US into its deepest deficit position in history, US President George Bush is now talking about scraping another $150 billion out of this deepening hole to prevent loss of confidence in the economy. (By the way, the latest downturn has already shaved $2.5 trillion off of the market capitalization of the stock market, so how much difference is $150 billion going to make in any case? Such old-fashioned maxims as "good money after bad" come to mind.)

Wait a minute - isn't it economic health that is supposed to sustain confidence in the economy - not remedial measures?

And how exactly does more deficit spending by the most indebted government in world history promote economic health?

Something doesn't add up here, and I think it is our politicians' logic!

Among other possibly relevant facts, did not the Dow Jones Industrial Average just set an all-time record high in October 2007 at 14198.10? And now, three months later, desperate measures are needed to keep the boat floating? That argument just doesn't hold water!

I'll grant you, the recent action in the Dow has been ugly, and by my reading of the technical indicators, the Dow can't get much lower than it closed on Friday without violating many multi-year technical uptrends, for example, in the RSI and PPO indicators, not to mention the absolute value of the Dow itself. Note too that multi-year MACD support has already broken down, in August 2007.

But what really concerns me is the way our politicians and financial leaders are talking and behaving. President Bush stated, "The economy needs a shot in the arm."

What? This is an economy that has had an injection of $5 trillion in liquidity through increased (doubled) money supply over the past decade. Chris Laird estimates that over the past two years alone, corporate buyouts, corporate stock buybacks, the Yen carry trade and mortgage derivatives markets have added perhaps another $5 trillion in liquidity to the economy. And the answer now is... more of the same? I don't think so.

The US economy has had enough shots in the arm to induce a coma, and to qualify it for admission to a rehab centre!

No, the current situation is not about the requirement for another shot in the arm for the US economy....

Rather, our current predicament is about coming to terms with economic reality. And economic reality is that saving and investment create economic health, not borrowing and spending. I think it is really that simple.

Tonight's coverage of the topic on CBC radio featured a succession of authority figures offering reassurance that the sell-off in the markets is overdone, and that investors are overlooking long-term value by selling at this point.

Nothing worries me more than talk of that kind in a historical context such as our own.

In fact, I beg to differ with the reassuring experts. By my estimation, the US economy is in its deepest trouble in almost a century. By every measure I follow, the US economy has not been in such desperate straits since 1929 - though of course in 1929, almost everyone (besides say, Joseph Kennedy) thought things were going just fine, thank you very much.

Clearly, the Dow has fallen 2000 points since October, and that is very bad news for the hopeful investors who have entrusted their life savings to the present generation of captains of government and industry.

Once again, I'm sorry, but people who talk and behave in such a manner as George Bush, Henry Paulsen and Ben Bernanke are simply not the kind of folks I feel inclined to trust, particularly in matters of money and finance (though I do trust Mr. Bernanke more than his predecessor, Mr. Greenspan, for what that fragile thread of difference is worth).

In short, we are presently enmeshed in the largest-scale multi-bubble debt-financed global economic predicament that has ever faced the world. (I'd be happy to admit to hyperbole here, except that I can find no shred of evidence to indicate that this manner of stating the facts is not simply the closest possible approximation to an objective description of the present truth.)

In short, investable assets (such as real estate, stocks and bonds) are hopelessly inflated in value, given the shaky economic fundamentals which presently underpin world markets. The market value of such assets is presently driven by the greatest bubble in world history as indicated by a series of highly objective measures.

As this "multi-bubble" deflates, our asset-dependent economy will inevitably unwind. Citizens will avoid further losses by converting their behaviour from borrowing (to enable them to spend more than they earn on investable assets), to conserving (spending less than they earn), and therefore saving.... again.... just as it used to be in the "old days."

Further, this dramatic turnaround is likely to happen quickly. In fact, the tipping point may possibly be very near in time, and almost certainly, nearer in time than our reassuring government and financial authorities presently indicate.

What is my response to the present reassuring talk and behaviour of our leaders?

I have never as an investor been so joltingly reminded of what I suspect must have been the eerie political, economic and emotional climate of 1929 prior to the legendary October 24 & 29 crash as I was today, in listening to the evening radio news. The hackneyed and faintly-reassuring-at-best public messages of our leaders offered only backward-looking encouragements that struck me as entirely inappropriate to our present economic emergency.

Based on this kind of last-ditch "more of the same" soothing talk from these so-called experts, I cannot shake the notion that the Dow Jones Industrial Average can certainly fall another 1000 points next week, and possibly... most or all of it as soon as Monday, January 21, 2008....

(January 21, 2008: Well, I think I called this one correctly, with one exception. World markets saw their worst rout in years today, including the precious metals sector, which I predict will recover and outperform the rest given the causative factors underlying present developments. However, the US markets were closed today for Martin Luther King, Jr. Day, leaving the Dow untouched! Otherwise, my sense that our authorities were displaying classic pre-crash behaviour seems to have been dead on the money.... So, let's see how things look in the US for Tuesday, January 22. My guess, not much different! Possibly... worse....)

(January 22, 2008: Ben bailed out the US market with an emergency 0.75% rate cut. Here's the problem. He's expending all of his ammunition in the opening round. Such a dramatic cut will certainly keep the hounds at bay, but in my view, not for long. As we know, the Japanese took rates down to 0% for over a decade, contributing to the fertilization of the ground for the global carry trade which has fuelled so much international speculative behaviour over the same period. In this most radical of all scenarios, Bernanke now has only 3.5% left to bargain with - and we're only three months off the Dow's historic October 2007 all-time high. Whoops! If this is a multi-year recession - or worse - much of the Fed's ammunition will have been spent in the first blink of Mr. Bernanke's eye. What will be left after this first salvo, but to slog through mud for many years to come?)

Also see my later posts: "More Pre-Crash Talk and Behaviour," "Only Yesterday," and, "There's a Tsunami Coming in Gold."
_

$900 Gold Is a Canadian Story Only So Far

13 January 2008

The absence of Headlines in the US press as gold has surged to record highs over the past few weeks has been both fascinating and disconcerting.

Record gold prices are clearly a story in commodity and mining-aware Canada. This weekend's headlines include the following Canadian story: "Gold futures surge to record US$900 an ounce on weak dollar, recession fears." The story conservatively estimates gold's previous record high in 1980 at an inflation-adjusted $2200. (It is no secret that a more realistic inflation calculation yields a figure on the order of $5000.)

So, salient though this story may be for Canadians, our American cousins to the south remain concerned, as of this weekend's business headlines, about Fed Chairman Bernanke's next plans to "aid" the economy (in my view, by throwing more gasoline on the fire to keep everyone warm for a little while longer); Mercedes' new SUV (how will gasoline rationing impact the sales and operation of this vehicle?); New York's state probe of Wall Street banks' subprime dealings (blaming the intermediaries and not the principal perpetrators in this top-down process of responsibility-diffusion); the difficulties of steering the Chinese economy (also floating on a sea of excess liquidity); Boeing's new Gulf Air 787 order (the rising jet fuel price is rapidly changing the air travel industry); Northern Rock's new (UK) boss (one of the earlier victims of the debt implosion; the Brits know their economy is in serious trouble, and it is a canary in the coal mine); the rescue of Citigroup by the unlikely duo of China and Prince Alwaleed (pumping yet more foreign currency into US equities to enable the continuation of the liquidity game); Macy's reduction of 271 jobs in the slowing midwest consumer market; Eurozone growth warnings (the problems are mounting in the loosely federated Eurozone); and Wall Street stocks falling as consumers cinch their belts (and we all know that the belt-tightening is only just beginning).

Valid business stories all, but - in my humble opinion - none so important as surging gold, and the changing economic fundamentals which underlie that surge (basically, the decay of all "paper" currencies due to burgeoning central government and central bank fecklessness). Steve Saville has pointed out recently that we prefer to blame the victims of the widening debt implosion for engaging in high risk behaviours that have been blatantly fostered by irresponsible central governments and central banks.

Mr. Saville wisely comments: "The huge quantity of money being recycled by the oil-producing nations and by China is, first and foremost, a symptom of the problem, not a stabilising force. Way too much money has been created over the past ten years and a significant chunk of this new money has ended up with the producers of scarce resources.

"From a short-term perspective it could be considered fortunate that the recipients of the money have turned around and sent it back from whence it came via investments in stocks and bonds, thus preventing some of the bad effects normally associated with high inflation from coming to the surface up until now. However, the fact that some of the traditional effects of rampant money-supply growth -- large increases in bond yields, for example -- were prevented from happening allowed the credit bubble to expand at a much faster pace than would otherwise have been possible. In other words, the so-called 'stabilising force' helped foment a bigger bubble and set the stage for the current debt crisis."

I note also that there has been a very recent upsurge in visits to my blog, an approximate doubling - literally within the past week - as gold has penetrated its former $887.50 nominal peak value. The search terms most often entered enquire why gold surged in 1980, what the inflation-adjusted price of gold was at that time, and why gold is surging now. Hopefully, the entries at this site, as well as the links I have listed (see the right-hand column), will provide visitors with answers to these questions and more.

As I have often commented, Canadian gold mining stocks continue to lag the rising commodity qua currency itself, but that pattern could now be changing, as Canadian gold stocks have been stronger than gold (possibly for the frist time since June 2002) during the early days of 2008. I think the Canadian dollar has run its course for now, and so is no longer providing a headwind to stall the movement of Canadian gold stocks.

My perception is that momentum has shifted from the commodity currencies, such as the Canadian Loonie, to the unwinding carry trade currencies - specifically the Japanese Yen and - my favourite - the Swiss Franc. Note that the Swiss Franc is only starting its recovery against the Canadian dollar. And, as the Franc rises in Canadian dollar terms, so too will gold, in my opinion.

If I'm right, then 2008 could be a friendly (if likely volatile) year for Canadian gold mining equity investors - perhaps the friendliest year since 2001 - which is the last time that Canadian gold stocks enjoyed a simple, steady, straightforward upwards climb for a full calendar year. Note that the Canadian gold-stock-to-gold ratio has not been so low since late 2000 - the year the current "stealth" gold bull market began. Canadian gold stocks could ramp a long way upwards from here, and still not be radically overbought against the surging gold price. Look for positive earnings reports from gold miners all year long through 2008....

My guess is that the current surge in gold tops out only when it surfaces and plays for a while - for at least a few weeks - in mainstream US headlines (and I don't mean page 13). I never imagined that the gold price story could remain so long submerged in the US business media, but affairs are what they are. It only implies that gold is going higher still.

Dare to imagine, if you will, a world in which Prince Alwaleed and an international consortium had decided to inject $10 billion in gold mining shares rather than the moribund Citigroup. This amount represents only 7% of Citigroup's recently halved - and still highly questionable - market capitalization (it would have constituted only 3.5% less than a year ago).

But $10 billion would buy all of Agnico Eagle Mines, most of Kinross Gold Corporation, almost half of Newmont Mining, or almost one-quarter of recently soaring world leader (and still excessively hedged) Barrick Gold Corporation.

The world I have just asked you to envision is coming, but we are not there yet. And the gold miners will be nowhere near so cheap as they are today when Prince Alwaleed and a coalition of sovereign wealth funds are eventually ready to buy them. (Bill Gates was smart enough to buy into 10% of Pan American Silver at bargain basement prices. Give him credit, he knows more about wise investing than he does about software design!)

Now let's wait and see how this one develops, but it looks like $900 gold is not yet even a story.

Watch the covers of Time Magazine, Newsweek and Fortune (which first featured gold in its January 2006 investor's guide). When you read the story there, again, not at its first surfacing - give it several more weeks or months to run - perhaps then you can collect some profits in return for your due diligence in investing in gold, silver, platinum and precious metal mining shares.