If you are NOT a citizen of the nation which provides the world's Reserve Currency, you have been witnessing events which are historically commensurate with times of great systemic financial strain. You have watched the price of Gold rise quite dramatically when denominated in your own local currency. If your Central Bank has not been too profligate, you have merely watched your currency drop to or near all time lows against the U.S. Dollar. If your Central Bank has been very profligate, you have watched your currency plummet and your stock market plummet even faster. If your Central Bank has been extraordinarily profligate (eg - if you live in the Philippines) you have seen all of the above and you have also seen your Central Bank first raise reserve requirements by 2.0% and then raise official interest rates by 4.0% in one hit!
Seeing any combination of these events, is there any wonder that most people who do not live in the United States are hell bent on getting whatever capital they have managed to rescue from the local debacle into the United States? Asians well remember when the Fed "saved the world" in late 1998. And now that their financial world is crumbling anew, most of them see themselves as having no choice except to bet that the U.S. can do it again. Europeans, who were not hit so hard two years ago, simply want to make some money. Their problem is that the money they are making is Euros, and the Euro is falling nearly as fast as they make it. Same thing goes for Aussies/Kiwis, and almost everyone else
So the money is still flowing into the U.S., despite the dives on U.S. stock markets and despite the ominous grinding of gears coming out of the U.S. corporate bond market, where yield spreads against equivalent maturity Treasuries have blown out to a far greater extent than they did in 1998.
Even the imminent danger of a Middle East War and a crash UP in the $US price of oil on October 13 did not deter this "cash flow". The Dollar continued to strengthen on the day.
Ever since U.S. markets took off in early 1995, they have been looked upon as an infallible cornucopia by Americans and the U.S. Dollar and the markets it gives access to have been looked upon as the best way to make money by the rest of the world. Even with the recurrent financial "crises" of the past four years, the cornucopia attitude remains inside the U.S.. Outside the U.S., the Dollar has long since become the ultimate "safe haven".
On October 12, the situation in the Middle East flared up to a point where many feared that it was out of control. U.S. markets, which had been falling for weeks, melted down. "Safe haven" buying, as usual, was concentrated in U.S. Treasury debt (bond yields on most maturities fell 10 or so basis points), and in the $US Dollar (the $US index was up 0.48% on the day).
But something else was added. The $US Gold spot future Gold price actually rose by $US 5.80. This, in itself, was not a remarkable occurrence. What was remarkable was the way in which this rise was reported, in the mainstream media, all over the world. The rise in the Gold price was stated to be "Safe Haven Buying. Undoubtedly, at least in part, it was.
But to talk about Gold as being a "safe haven" in the U.S., the home of the invincible U.S. Dollar and (up until fairly recently anyway) invincible markets is definitely new. For ANYTHING other than the $US to be regarded as a "safe haven" implies that the $US is NOT. And that, not to put too fine a point on it, is NOT ON! On October 13, there was no more loose talk about "safe havens". The $US index rose 0.98. On U.S. markets, the Nasdaq bounced 7.86%, the S&P 500 bounced 3.33%, and the Dow bounced 1.57%. Treasuries were no longer "needed" and yields were flat. And the $US Gold price fell $US 4.00.
Apparently, "inflation" is no longer a threat, even though the September PPI came out at +0.9%. Apparently, a low Euro is no longer a threat either, even though the Euro closed on Oct. 13 at $US 0.8538, only $US0.005 above its all time low just before the G-7 currency intervention of Sept. 22. Apparently, the Middle East situation is now less of a threat. Oil fell $US 1.26 on Oct. 13 after rising $US 2.81 on the previous day.
The very fact that all of this financial chaos is occurring in the last month of a U.S. Presidential is an even better example of the waning of U.S. "Superpower" status than is the flare up in the Middle East. The truly scary part of the equation is that world dependence on the U.S. as a financial safe haven is not (yet) reflecting this obvious loss of geo-political clout. We are in the midst of market gyrations that cannot be made sense of by any rational analysis.
Outside the U.S., Gold has been a very good preserver of capital this year. Inside the U.S., it beats the stock market hollow, but it doesn't beat the Dollar. If and when the situation comes where it DOES beat the Dollar, then the jig is up. There can be no alternatives to the Dollar as a "safe haven", not when the U.S. continues to rely on the global flow of cash all heading in the same direction. The events of October 12 may be the first crack in the wall. Time will tell.