Buy Gold Because a Currency Crisis is Coming

Gold’s London AM fix this morning was USD 1,694.75, EUR 1,291.44, and GBP 1,082.63 per ounce.

Yesterday’s AM fix was USD 1,705.25, EUR 1,299.93 and GBP 1,088.57 per ounce.

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Gold fell $12.40 or 0.72% in New York yesterday and closed at $1,700.80/oz. Gold rose in Asia initially touching $1707/oz prior to falling in Europe to below $1,700/oz.

Trading was slow as investors await the outcome of a Federal Reserve meeting, which could offer clues over the direction of interest rates in the world’s largest economy.

Bernanke may again try and “influence the mood” by suggesting that QE is not imminent which could lead to further short term weakness in the gold price. 

However, analysts who have been accurate regarding Fed policy in recent years believe that Bernanke is in affect bluffing and the fragile US economic recovery is now massively dependent on near zero percent interest rates and QE.

Contrary to the oft repeated assertion that rising rates will be negative for gold – the opposite is of course the case as was seen in the 1970’s when rising rates were correlated with rising gold prices.

Rising interest rates are bearish for stocks, bonds and property and bullish for gold. A prolonged period of rising interest rates and the assertion of positive real interest rates again would be bearish for gold but the Fed would risk a Depression if it attempted to move interest rates up to even the historically low levels like 3% or 4%.

Buy Gold Because A Currency Crisis is Coming

We have long warned that a consequence of a sovereign debt crisis in various countries and coming in the US , would be currency devaluations and an international monetary crisis. Slowly but surely various commentators are now coming to that conclusion. 

According to a new book launched this month, ‘In Gold We Trust?’ a currency crisis is coming and people should buy gold to protect themselves. 

Michael Green, co-author with Matthew Bishop of ‘In Gold We Trust?’, explains to Gregg Greenberg of The Street in the video why a currency crisis is unavoidable and investors need to protect themselves with gold.

Bishop is the US Business Editor and New York Bureau Chief of The Economist and Green is an economist and an author who has written books with Bishop.

"There is a crisis going on in money that is going to run and run and run. So there is a pretty good case for being long on gold" says Green.

"We have got used to the idea that paper money issued by governments is what money is but if you don’t have confidence in that money people are going to be looking for alternatives.”

“So I think the point we want to make in the book about gold is don’t think about gold is going back to some historic past, some true money. Think of gold as being the first mover in the new evolution of money where we are going to have to find lots of different monies if government backed money collapses.”

Green says that he believes that “the crisis is only really starting”. 

“There is a whole debate that goes on between economists as to whether inflation is coming true or not … Alan Greenspan says that it is about 12 or 13 quarters before the expansion in QE will lead to inflation. 

“I don’t think that argument matters so much the real argument is political. Whoever has to deal with the deficit problems, the economic problems, this whole deleveraging crisis – I think at some point it is going to have to reach for the inflation button. It’s going to be the only way we get out of this. Because cutting down, austerity, European style austerity is not going to work with the voters so the political drivers for inflation are much stronger than this monetary story.”

“When asked by Greenberg what Green thinks the triggers will be for governments to start paying attention to the crisis – whether it will be a jump in interest rates or a total abandonment of US Treasuries by the Chinese and "what is going to cause them to finally get their heads out of the sand and focusing on the currency crisis and then to gold?"

Green refers to gold investor Thomas Kaplan’s view of paper currencies as Kaplan said that “all paper currencies are toilet paper but the dollar is double ply” toilet paper. 

Green concludes by warning that a dollar and currency crisis is coming.

“In a sense the dollar is insulated. So you have got this paradox that even though nothing is being done about the deficit in the US, because of the euro troubles the dollar is actually rising and gold has been falling as a result.”

“So the day when this crisis comes keeps being put off because of the unique nature of the dollar as global reserve currency but it is coming at some point and what we are going to see is investors looking for alternatives and gold is the first alternative  …  it won’t be the last."

For breaking news and commentary on financial markets and gold, follow us on Twitter.

SILVER 
Silver is trading at $33.59/oz, €25.63/oz and £21.45/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,690.25/oz, palladium at $692./oz and rhodium at $1,450/oz. 

NEWS

(Business Week)
Gold Advances With Equities Before Federal Reserve Meeting, Greek Bailout

(Reuters)
Gold gains ahead of Fed meeting, euro helps

(MarketWatch)
Gold rises above $1700 in Asian trading

(Reuters)
Japan starts buying Chinese debt to diversify away from dollar

COMMENTARY

(The Street)
Video: Buy Gold Because A Currency Crisis is Coming – Greenberg and Green Video

(Future Money Trends)
You Can’t Beat Silver as an Investment

(Zero Hedge)
After Greece, Here Are The Four Things That Keep Bank Of America Up At Night

(NY Sun)
Bernanke’s Zero Interest Rate Policy Turns Out To Have a Big Hidden Cost To U.S. Savers

(24HGold)
Kuntler: Turbo-industrial world wends its way into the long emergency

(King World News)
Turk – Why Army of New Buyers Will be Entering Gold & Silver

 

Mark O'Byrne

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