Emerging Market Collapse – Why are Gold & Silver prices affected?

Welcome to illuminati silver, we tell you
the truth about silver. Today is Monday 3rd September 2018 and we
are going to talk about Emerging markets and how they can have a profound effect on gold
and silver prices. But first a slight rant from us and a word
of caution to you our listeners. We have spent the weekend and today listening to so called
You Tube experts, with strong subscriber bases, correctly stating that what is happening in
emerging markets is affecting the price of gold and silver and then postulating a vast
range of theories (most of which are wrong) in the hope that by covering every possible
eventuality they successfully justify their conclusions – which they actually arrived
at by watching and listening to pumper and conspiracy theorist channels themselves, because
most of them have zero experience in International Finance, Trade and currency swaps.
In other words, they may have got the conclusion right but do not have any idea, how they have
arrived at it. This truly makes our blood boil, because we hear their subscribers pay
them homage so that when their next ‘pumpers video’ comes out about black swans, precious
metals about to fly to the moon or the dollar is about to collapse they believe them – without
realising they are being conned. This is history repeating itself as we have seen from 2011
onwards=these pumpers encouraging people to put most of their wealth into gold and
silver because their prices were not only going to recover, but double or treble or
quadruple in months. Now, let us just add that If someone says
I’ve been following this subject but I don’t really know what is happening but this is
my educated guess based on the information I’ve read and this is the conclusion I’ve
come to then fair enough. But if they say, emerging markets are having a profound effect
on the price of gold and silver and will continue to do so for some time to come and then not
stipulate what that effect is or how it came about in the first place with precision, then
sorry we get truly annoyed with these people who are trying to educate their audience about
subjects they know little about themselves and could very well lead them into a cul-de-sac.
What almost all of them have failed to mention is that the situation with the emerging markets
and their currency devaluations is precisely because what has happened to the US dollar
in the first place. The US economic policy and more precisely its currency policy has
led to this crisis, compounded with those countries affected, not putting in place the
economic regime or infrastructure they should have done in the beginning.
Let us explain – and you probably won’t get this from these channels that have set
up recently claiming to talk about and educate you on world affairs and economics.
The US dollar remains the single most important consideration for Emerging Market finances.
Why do we say this? The most important reason is:
The rise in the local currency cost of servicing dollar-denominated debt.
Borrowing in foreign currency on a meaningful scale is almost entirely an Emerging Market
phenomenon, spurred by the underdevelopment of local capital markets, which is typically
associated with low domestic savings, in turn often caused by recent experience with, or
lingering memories of, relatively high inflation rates.
That means if you are a country as these are, which have previously experienced high inflation
– prices going up, – you as a citizen and a nation are not going to save but spend now
because you know you will be able to buy less with that currency tomorrow. These conditions are evident in Argentina
and Turkey, both of which have been in the crosshairs of recent market turmoil, although
the increase in EM foreign-currency borrowing over the past decade, dominated by the dollar,
is much more widespread. Dollar funding has been cheap and plentiful, and EMs have responded
accordingly. So, what has exacerbated this situation? Well
the recent strength of the US dollar, which is up 3.5% – 4% per cent in nominal effective
terms since late January following a two-year depreciation, is causing investors to re-evaluate
their emerging market exposures. So If January was, in fact, a dollar inflection
point and the trend is for further dollar appreciation, then in the local vernacular,
emerging markets are stuffed, or in gentry speak ‘in line for a very difficult time.’ So in the most simple terms, these countries
have been taking out US dollar loans to finance their economies. Instead of creating a wealth
structure and encouraging savings, they have basically misspent these monies. Now the dollar
is beginning to rise, they cannot afford the loan repayments, this puts pressure on their
own currencies, which were already under threat, making the situation even worse. On top of
that President Trump imposes tariffs on these countries goods and so they cannot even trade
their way out of the situation. So those who have investments in these countries – move
what monies they have out of the local currency and into the ever-strengthening US dollar
which in turn strengthens it even further. So, when you hear these idiots or deceivers
on You Tube telling you beware of the US Dollar imminent collapse – they just simply do
not know what the heck they are talking about or are trying to encourage you to buy gold
and silver now before its too late. The second reason for a strong dollar posing
challenges to EMs is the usual inverse correlation between the dollar and commodity prices. With
some important exceptions including China, India and Turkey, EMs as a whole are net exporters
of commodities. Leaving aside all other considerations with respect to what might drive commodity
prices, the dollar price moves inversely with the dollar’s nominal exchange rate. This
was apparent most recently in the 2014 commodity price collapse that was mirrored by a strong
surge in the dollar. With oil currently trading at a four-year
high, it is clear that the inverse relation between commodity prices and the dollar does
not always hold, but the implications and importance of the dollar as the world’s
currency or No 1 currency cannot really be a point of debate.
Other factors may cause temporary, or even extended, interruptions in the correlation,
but as long as the dollar retains its global pricing role, and this is the key message,
as long as the dollar retains its global pricing role it will be a driver of commodity prices
and the overall EM current account position. Weaker EM currencies should stimulate net
trade and growth in the short term but this is adversely affected by tariffs. Notwithstanding
this, medium-term growth is driven more by investment, especially in EMs that need expanded
capital stocks to harness the potential economic windfall associated with favourable demographics
and rapidly growing labour forces. The overall growth impact will depend on whether
the effects of local currency depreciations are larger on net trade or investment, and
the timeframe considered. A final impact is how the Central Banks operate
their exchange rate policies – floating or fixed or shadowing , now we wont go into
this, because it is so technical and boring you will stop listening to this video – if
you haven’t already done so, needless to say the net effect is if they get it wrong,
which they broadly have, EM external balance sheets are hit doubly hard by dollar strength.
So there we have it in a nutshell. Emerging market currency failures, because of borrowing
too much dollar denominated debt and not structuring their economies correctly to manage it, further
cause investment capital to leave their country and flee into the US dollar, thereby strengthening
the dollar further resulting in lower commodity prices such as gold and silver and this is
likely to continue while the emerging market crisis plays out. Economists differ as to
which countries may fail first or the most, but Adam Slater of Oxford economics based
on his calculations state that the first major wave will be Turkey, Brazil, Chile and Malaysia,
followed by a second group of Colombia, South Africa and Argentina. We shall have to wait
and see if he’s right in terms of pecking order, but the writing is on the wall, for
these countries, unless the US changes its interest rate policy and begin to lower rates
– and for the US dollar to fall, which is very unlikely to happen if the US adopts an
US First policy. Lets just wait and see but please heed our caution, be careful to whom
you are listening and the authority and experience that those who profess to guide you actually
have. We hope you have found this video interesting
and informative and if so, please give it a thumbs up and share it on twitter. Please
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updates and offers. Disclaimer:
Illuminati Silver owners come from a background of Banking, International Wealth Management
and Economics. Having now retired from these worlds we are not qualified to give investment
advice. Therefore, this and other productions must not be deemed to be giving such advice
and merely represent the personal views of its owners.

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