http://www.financialsense.com/editorials/phillips/2007/1221.html

More than a confidence crisis!

“Many $ holders, including central banks and sovereign wealth funds as well as private investors, clearly want to diversify into other currencies. Since foreign $ holdings total at least $20,000 billion, even a modest realization of these desires could produce a free fall of the U.S. currency and huge disruptions to markets and the world economy. Fears of such an outcome have risen sharply in both official circles and the markets.

However, none of the countries into whose currencies the diversification would take place want to receive these inflows. The Eurozone, the UK, Canada, and Australia among others believe that their exchange rates are already substantially overvalued. But China and most of the other Asian countries continue to intervene heavily to keep their currencies from rising significantly. Hence, further large shifts out of the $ could indeed push the floating currencies far above their equilibrium levels, generating new imbalances and a possibly severe slowdown in global growth.”

This is the atmosphere that has driven investment demand for gold and in turn the gold price. We expect that in the year ahead, this climate will deteriorate substantially driving investment demand to new record levels. But let’s be clear about this, we are not talking of a simple rising of investment demand, we believe we will see a large acceleration in that demand taking it well through four figures in tonnage terms as well as in price terms.