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All major currencies are lower against
gold today with the Japanese downgrade and concerns about global
growth taking their toll on Asian stock markets. While European indices
have eked out gains, some selling of peripheral European debt has been seen
again and yields on German bunds have risen.
 
Cross Currency Table
Gold is trading at USD 1,844.80, EUR
1,276.10, GBP 1,117.90, CHF 1,456.50 and JPY 141,225 per ounce.
Gold’s London AM fix this morning
was USD 1,850.00, EUR 1,279.30, and GBP 1,119.58 per ounce (from
yesterday’s USD 1,886.50, EUR 1,301.75, GBP
1,138.64 per ounce).
The long expected correction in gold
began yesterday and gold fell 1.6% in dollar terms. Traders taking profits
after the recent price surge led to the falls yesterday.
In trading terms, gold’s recent
price appreciation of nearly 17% in one month had been excessive - although
completely understandable given the scale of the crisis facing the global
financial and economic system.
Another very significant development for
the gold market took place yesterday when an influential member of
Germany’s ruling coalition, Ursula von der Leyen,
said that Germany should follow Finland’s lead on Greece and seek
collateral for loans from bailout countries and the collateral should preferably
be gold.
Ursula von der Leyen
is a senior German minister; deputy chairwoman of the Christian Democrats
(CDU) and is a potential rival to Angela Merkel. It is unlikely that she
would have made a solo run on this if she had not had a prior discussion with
Merkel or at the very least with her government colleagues and lawmakers.
Government officials and anonymous
government sources were quick to distance the chancellor and her government
from Ms von der Leyen’s
demands but Merkel herself did not comment and did not reject the call.
CDU finance spokesman Michael Meister
said the call for periphery nations to give their gold reserves as loan
collateral was a distraction. “The most important thing is that central
banks retain independent control of their own gold reserves,” he said.
However, German officials were in full
damage limitation mode. The maxim ‘never believe anything until
it is officially denied’ may be appropriate.
Germany is likely to push for European
gold reserves to be used as collateral. The Deputy Chairwoman of the
Christian Democrats is an astute woman and politician and knew exactly what
she was saying.
Indeed, she echoed other senior lawmakers
who in May called for Portugal to consider selling their gold.
Two leading governing party members -
Norbert Barthle, Germany’s governing
coalition budget speaker and his counterpart Carsten
Schneider from the Social Democrats, the biggest opposition party, urged
Portugal to consider selling some of its gold reserves to ease its debt
problems. They called for a review of Portugal’s request for financial
aid to include gold and other potential asset sales.
The German people and lawmakers realize
that the euro is being debased and lawmakers realize that gold may offer
protection from the debasement of the euro but also from sovereign default
and systemic contagion.
Some of the PIIGS (to use the unfortunate
and unfair acronym) have very sizeable gold reserves – especially Italy
which alone has some 2,452 tonnes of gold. Portugal
has 421.6 tonnes, Spain 281.6 tonnes,
Greece 111.7 tonnes and Ireland has just 6 tonnes.
The ‘German PIIGS gold
collateral’ story is a very important one that is unlikely to go away.
Indeed, it may be the story that helps educate those not familiar with
economic and monetary history and with monetary economics and who do not
understand gold and why gold remains valuable and remains a safe haven asset
and currency today. (World Gold Reserve Chart - Wikipedia)
Misguided ‘Gold Bubble’
Callers Out in Force Once Again
Gold remains overbought in trading terms and due a correction but the
continuing simplistic talk that gold is a bubble is again misguided. It is a
simplistic call based on assumptions and not based on the fundamentals of the
gold market.
Some of the people calling gold a bubble
today have been saying gold was a bubble when it reached $850/oz in early in 2008.
There remains a massive lack of
understanding of what is happening in the gold market and very significant
developments in the gold market are ignored due to a lack of knowledge and in
some cases due to bias and ignorance.
The fact is that those who claimed gold
was a “barbaric relic” and a “useless commodity” have
gotten gold spectacularly wrong.
This is because gold is not just a
commodity. It is much more than that – it is money. Money that cannot
be created at a whim and debased by politicians, bankers and central bankers.
It is also a safe haven asset and safe
haven currency that has no counter party risk as it cannot default.
This is why gold is in demand today by astute
people, governments and central banks.
This is why central banks internationally
were net buyers of gold in 2010, and will be in 2011and 2012, and almost
certainly throughout this decade.
This is why the People’s Bank of
China is building their gold reserves without declaring it to the world and
is encouraging their citizens to buy gold.
This is why overnight Kazakhstan has
given its central bank a ‘priority right’ to purchase all
domestically mined gold "in full".
This is why Chavez has nationalized the
Venezuelan gold industry and is repatriating Venezuela’s gold reserves.
This is why Bild,
the best selling daily newspaper in Germany urged
their readers to buy gold two weeks ago.
This is why senior German government
officials are calling for the gold reserves of European countries such as
Greece, Portugal, Spain, Italy and Ireland to be used as collateral for
future loans.
Importantly, gold is a store of value
unlike other assets, and unlike fiat currencies such as the US dollar, pound
and the euro.
For the latest news and commentary on
financial markets and gold please follow us on Twitter.
SILVER
Silver is trading at $41.89/oz,
€29.02/oz and £25.46/oz.
PLATINUM GROUP METALS
Platinum is trading at $1,863.50/oz, palladium at
$761/oz and rhodium at $1,800/oz
NEWS
(Bloomberg)
Merkel Rejects Seeking Collateral in Bailouts
(The Irish Times)
Derek Scally: Merkel rejects
ally's call to use gold as bailout loan collateral
(Bloomberg)
Central Banks Seen Retaining Gold to Help Manage Debt as
Bullion Advances
(Bloomberg)
Gold Rallies After Dropping From Record
(Bloomberg via Financial Post)
Repatriation of gold from abroad to start soon, Venezuela
says
(Bloomberg)
Kazakhstan Gives Central Bank ‘Priority
Right’ to Buy Gold
(Reuters)
Gold rebounds on Japan downgrade, physical buying
COMMENTARY
(MarketWatch)
Gold $3,000?
(MarketWatch)
China's Gilded Gold Market
(King World News)
Rickards – Chavez’s Gold Leased to JP Morgan,
Barclays, HSBC?
(You Tube)
Rickards
Says Libya's Gold Bullion May Never Be Found
(You Tube)
Jim
Rickards - Gold is Money - $7,000 Gold Price
(Wall Street Journal)
Checking In On that ‘Gold to $10,000′ Call
(The Telegraph)
Trackbacks Relax, Central Banks Can Still Save Us
(ZeroHedge)
A (Hopefully Fake) Paul Krugman
Laments The Lack Of Death And Destruction Following Today's Earthquake
(ZeroHedge)
Doug Casey: Exiting The Eye Of The Storm
(Economic Policy Journal)
Roubini's Off the Wall History of Financial Crashes
(Barron’s)
Parabolic price action in gold suggests short-term
caution while long-term bull market continues
Mark O’Byrne
Goldcore
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