Gold Breaks Out and Consolidates Above $1,700/oz – Financial Alchemy Risks Severe Inflation

Published in Market Updates  Precious Metals Update  on 26 October 2011

By Mark O’Byrne


Gold is trading at USD 1,708.20, EUR 1,230.11, GBP 1,071.37, JPY 129,700,  AUD 1,650 and CNY 10,864 per ounce.

Gold’s London AM fix this morning was USD 1,713.00, GBP 1,070.69 and EUR 1,229.54 per ounce. 

Yesterday’s AM fix was USD 1,656.25, GBP 1,036.19 and EUR 1,187.96 per ounce.


Gold in USD – 30 (Tick) 

Gold has extended yesterday’s 4% rise in the US, with further gains seen overnight in Asia and consolidation in Europe. Safe haven demand continues due to increasing risk of a failed outcome from the European Union leaders' meeting scheduled later today and due to significant macroeconomic and monetary risks.

The cancellation of a European finance ministers meeting and downplaying of expectations by euro-zone officials about the outcome of the EU summit is adding to investor concerns about contagion emanating from the nexus of European banks and large sovereigns including Italy. There are conflicting reports that Berlusconi has agreed to step down.

US Treasury Secretary, Timothy Geithner warned of the “catastrophic risk” posed by the turmoil. 

The Bank of England dismissed the chaotic efforts to save the eurozone from financial meltdown as a temporary solution to the region’s woes. 

Governor Sir Mervyn King said long term issues such as towering levels of debt and structurally weak economies still needed to be tackled. 

‘The aim of the measures to be introduced over the next few days is to create a year or possibly two years ’breathing space,’ he said.

King’s warning follows that of former Fed Chairman Alan Greenspan who warned on CNBC two weeks ago that the EU was doomed to fail because the divide between the northern and southern countries is just too great.

The key problem facing bureaucrats and bankers of massive swathes of debt in the European and global financial system is not being tackled. They are attempting to rectify a problem of too much debt by further electronic and paper money creation and the creation of even more debt.

The growing risk now is that in a desperate attempt to solve the crisis, bankers and bureaucrats in the EU, US and elsewhere are practicing an extreme form of financial alchemy which risks stagflation and possibly in a worse case scenario hyperinflation.

Monetary economics and history shows that there will be costs and ramifications for the creation of billions and trillions of euros, dollars, pounds, yen and other fiat currencies.

The European Monetary Union (EMU) rightly expressly forbid the printing and electronic creation of money to bail out banks and sovereign nations.

A look at a history of currencies—including the mighty Deutsche Mark—shows the unavoidable results of currency debasement.

Other News
Bild reported, without citing how it obtained the information, that the Bundesbank’s gold reserves may be used as collateral in the event that the European Financial Stability Facility can’t meet its payment obligations.

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SILVER 
Silver is trading at $33.29/oz, €23.89/oz and £20.83/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,567.70/oz, palladium at $642/oz and rhodium at $1,525/oz.

NEWS
(Reuters) 
Gold hits one-month high ahead of EU summit

(Bloomberg) 
Gold Advances to One-Month High as European Debt Risk Stokes Haven Demand

(Reuters)
Analysis: China's gold frenzy triggers birth of small bourses

COMMENTARY
(Money Week)
The Gold Bull Market: The 144-day Moving Average Works Again

(Wall Street Journal)
Hey, Look Who’s A Safe Haven Again! (Hint: Gold)

(Goldseek) 
Chris Martenson: The Real Contagion Risk

(ZeroHedge)
Everybody Print! BOJ Will Reenter Global Currency Devaluation Frenzy To Kill Yen

(MarketWatch)
Why Gold is Rallying

(Business Week) 
Coins to Credit Cards, a Short History of Money: Neil MacGregor

 

 

 

 

 


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