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TMFAleph1 (96.43)

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October 19, 2010 – Comments (2) | RELATED TICKERS: GLD , EEM , TLT

Must-read: Tasker on the difference between mid-80s Japan and present-day China and the risk that an enormous emerging markets bubble is now forming. His commentary is illuminating -- this is worth your time.

In other news:

Gold: Another element that supports a bullish stance on gold: South Korea -- the 5th largest holder of foreign exchange reserves -- is considering gold purchases. At 0.2%, South Korea's current allocation to gold is one of the lowest among large economies (the world average is 10%). Consider that if S. Korea were to raise its allocation by a single percentage point, that would correspond to a $29 billion investment -- more than half the current value of the total assets of the most popular gold ETF, the SPDR Gold Shares (NYSE: GLD).

Money Printing/ Bubble Blowing: Nobel winner Stiglitz warns of the risks linked to the 'new Monetarism', prefers fiscal stimulus. The piece is titled It is folly to place all our trust in the Fed. And in academic economists, I would add.

 

Alex Dumortier

2 Comments – Post Your Own

#1) On October 19, 2010 at 10:01 PM, JakilaTheHun (99.94) wrote:

Great FT article.  I agree completely .

However, that article is also one reason I'd be highly skeptical of owning gold.  Gold is being driven by demand in East Asia.  And demand in East Asia is being driven by artificially suppressed purchasing power in places like China.  If East Asian currencies were to revert to their natural economic equilibriums, gold's bull run might be toast. 

China's move to buy copper during the worst of the crisis was brilliant since prices were at absurdly low levels.   However, it's not really wise for South Korea or any other Asian nation with an undervalued curerncy to purchase an overvalued asset like gold. 

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#2) On October 20, 2010 at 12:24 AM, TMFAleph1 (96.43) wrote:

A thought-provoking observation, Jakila. However, there is enormous inertia from these nations when it comes to allowing their currencies to appreciate, since it threatens the export-driven economic model that has been so successful for them (and which, along with U.S. profligacy, are the twin pillars of the global imbalances that enabled the credit crisis).

The upward revaluation of the renminbi is necessary and it will take place, but it won't happen overnight. I think that still leaves at least a good couple of years for the bull market in gold to keep running.

Alex Dumortier

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