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Islamic Dinar : 4.25 grams 22 K Gold

Dirham Islam : 2.975 grams Pure Silver
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Wednesday, March 19, 2008

The Therapy is Effective for Time Being...

This year the US Federal Reserve already tried to save the economy and its currency (US$) several times, take a look at my article, amongst others dated 12/1/06, 26/2/08 and 12/3/08.

The continuous rescue attempt can be viewed from two sides, first we can see how serious is the problem that the Dollar is facing so it needs to be rescued. Second, we can see that the US government is very serious to save its currency.

The first view was seen by the market in previous rescue attempts so the Fed’s efforts were not effective; while last night was different, the second view was seen by the market players therefore the Fed rate cut of 0.75 basis points succeeded in increasing the US Dollar and stock market at once.

In the money market, the US$ strengthens agains 15 european nation currencies, the Euro, from 1 Euro equals US$1.5831 the day before, to recover to US$ 1.5640 in yesterdays closing. In the stock market, the Fed’s latest rescue attempt succeeded in driving the stocks upward significantly. Dow Jones Industrial Average was up 3.51% from previous day, while the NYSE Composite Index was up by 3.97% from the day before.

What does this means for the price of gold and Dinar? The attractive stock market yesterday became the temporary competitor for the gold market. For the some of the players, the gold price is overpriced and was the time to take profit and used their fund to purchase stocks. Thus, the gold price declined to US$985.0/troy oz this morning.

The impact of this decline in global gold price is of course the Dinar in GeraiDinar also declined significantly, 2.25% from yesterday afternoon price of Rp 1,289,200 to Rp 1,260, 200.- this morning.

For every decline in price of stocks or gold, the market players can always have two views. For the decline of gold for instance, the market players can see that this decline will continue or just temporary and will go up again.

Those who view that this decline will continue is based on the reality that the gold price is too high according to them, because even this mornings gold price in US$ is still 51% higher than the gold price last year. Their opinion is that the gold price is too high and tend to decline.

On the other hand, I see that the price is still too low. The basis of my calculation is the real purchasing power of Dinar towards commodities like oil, etc. History has proven that the purchasing power of Dinar is the same in every era; so if it is used to purchase crude oil for example – the purchasing power of gold should be the same.

The steps taken by the Fed last night can only affect the money market and stock market, but the US$ purchasing power towards the majority of commodities like crude oil, nickel, or agriculture products, did not improve. The crude oil price for instance still lays at US$ 108.57/barrel this morning.

In my opinion, sooner or later the gold price will increase again and so will Dinar. But again, this is only my opinion; it can be wrong and don’t have to take my opinion. Only Allah the Most Knowledgeable.

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