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renminbi can take gold to $500/oz

  1. Renminbi can takze gold to $500/o

    By: Tim Wood


    Posted: 2003/03/10 Mon 20:17 ZE2 | © Mineweb 1997-2003


    TORONTO -- The 2003 Prospectors & Developers Conference now underway in this unusually frigid city got off to a cracking start with a presentation from Donald Coxe of Harris Investment Management in Chicago who predicts that China’s currency has a significant future role to play in determining the gold price.
    Coxe’s message was heart-warming for miners and their investors – the industry outlook is the best it has been in decades, especially for gold.

    Coxe, an historian by training, says he went bearish on metals and mining from 1983 in recognition that the industry had been overbid on the wrong assumption that high inflation was a permanent condition. “There was massive over investment in mining in the 1970s.”

    Since 2001 though he has been telling his clients to buy gold and base metals again. “We had 20 years where commodities have been losing relative to other asset classes which means they haven’t had much capital. Eventually the law of supply and demand must take over, so we’re in a new bull market environment for oil, gas, gold, while the worst is over for base metals.

    “Capital will continue to migrate from the technology stocks to the real new economy stocks that are represented here,” said Coxe.

    A lot of his metals bullishness has to do with bearishness on the US dollar. He has a specific date for the start of the bear market for the dollar – 1 February 2002. He says the day before that was the last date on which European Union citizens had to exchange the old national currencies.

    “The Europeans, faced with [potential tax problems and obsolete currencies] went to the foreign exchange window and bought dollars. This is one of the rare cases where a bell was rung at the top of the bull market for the dollar.

    “This [dollar] bear market is a beauty because the bull was driven – in its final orgiastic phase – by the desire to avoid taxes which is a visceral [reaction]. Markets are not just driven by fear and greed, but by hatred of tax authorities at times.”

    Gold has, to date, demonstrated its reciprocal relationship with the dollar rather well with the price of the metal up roughly 20% and the euro up about 24% in the past year. He expects further dollar weakness, but only once two key currencies stop propping it up – the yen and the euro.

    “The yen is the currency of inflation and the euro is the currency of stasis. We do not have a heavyweight alternative to the dollar. After the 1987 crash you could move into the Deutschemark or Yen, but you don’t have that this time.”

    Coxe’s predicted heavyweight alternative that will further underpin gold? China’s renminbi, which is presently excluded from the US dollar index.

    “China is spending unbelievable amounts of money to suppress its own currency. We know how this story ends because we have the example of the yen.”

    That example was an attempt by Japan to maintain its competitiveness by buying Treasuries and Deutschmarks to keep the yen cheap. Eventually the West grew tired of this game at its expense and threatened Japan with trade barriers if it did not float its currency.

    China doesn’t have that option under World Trade Organization rules where competitive currency devaluations are treated as subsidies that demand penalties.

    “At some point the renminbi will float and it is undervalued by some 40-50%. When you move that into the US dollar index it will be currency number three or four and that will be enough itself to get gold to $450 or $500 per ounce,” said a confident Coxe.

    He predicts that gold will hold its value and disparages those who hold “mystical views” about gold being worth thousands of dollars an ounce.

    “We are in the early stages of a major bull market in gold, meanwhile institutional investors still haven’t cottoned on to it. What we do not have are any of those signs of a market top. When gold ran up to $389 an ounce, there were small-scale speculators taking big positions on Comex; they set a record.”

    “Gold stocks as a per cent of global indices are very near their all time lows so there is enormous upside room. For institutional investors, currency is a huge component of what they do. Gold stocks give you a form of portfolio insurance against the declining dollar. That is their fundamental driver.”

    Coxe was contemptuous of any claim that the price of gold is manipulated as suggested by the Gold Anti-Trust Action Committee. “Gold is doing exactly what it should according to 68 years og history and one year of recent history. The people that are giving us this kind of story are bereft of a knowledge of history and overwhelmed by a sense of conspiracy

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