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Peter Grandich elaborates on his new support for GATA
By Jim Sinclair
JSMineset.com
Thursday, July 21, 2005
Today the Chinese opted to float the yuan within a specific range
against a basket of currencies, effectively breaking its tie solely
with the U.S. dollar.
The Chinese have not yet disclosed the constituent items and
percentages of those items in the basket of currencies which the
yuan will float against.
This is an undeniable move away from the dollar and will effect the
thinking of those central banks that have already diversified or are
preparing to diversify out of complete reliance on the dollar as a
reserve currency. This is what gave the markets the smell of a
bottom in gold and a top in the dollar yesterday.
The most important implication of this move is that it reduces the
need for China to purchase U.S. Treasuries in the amounts
accumulated in the past. We will be able to evaluate this
development more precisely as soon as we know the percentages of the
constituents in the currency basket.
This is bad news for the TIC Report, so it is a weakening dollar
value constituents item. This makes U.S. federal borrowing more
difficult, turning it back toward the inland credit markets, forcing
rates higher on the intermediate-range U.S. bonds. That is
incorrectly considered dollar-positive.
I conclude that the move by China is therefore neutral for the
dollar at present but in a short time it will be recognized as
negative. Prior to this important event, the spin had many convinced
that everything was dollar-positive. Now that has changed to
neutral.
So I see this strengthening the recent lows for the gold price. At
the same time, the recent highs of the U.S. dollar now become more
significant as resistance and will be viewed as a probable top range
should they be revisited.
My bottom line is that gold will trade to $480 and then $518 to
$529. The dollar will return in time to the .8050 level and much
lower levels thereafter.
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