Gold Surges in Asian Trading to Record Nominal High on Washington Theatre and Dollar Debasement

Gold is trading at $1,617.75/oz, €1,126.49/oz and £993.46/oz. 

Gold surged 1.4% ($23) from $1,600.90/oz to a new record nominal of $1,624.07/oz within an hour of the open in Asia. Gold reached new highs due to continuing uncertainty and theatre regarding the debt ceiling negotiations in Washington. Gold is higher in all currencies except the Swiss franc as the Swiss currency is also continuing to see flows.

Silver surged 2% on the open from $39.69/oz to $40.48/oz and is higher in all currencies including the Swissie. There was some unusual selling in the electronic market prior to the open which saw prices fall from the close on Friday at $40.05/oz to $39.69/oz prior to the surge on the open.


Cross Currency Rates

Asian indices fell with the Chinese indices in particular down sharply (CSI 300 -3.25%) on the U.S. debt impasse concerns. 

The high speed train crash may have contributed to the larger losses in China but there are also growing concerns about the Chinese financial system and economy.

European indices have recovered from an initial sell off and peripheral Eurozone debt markets have seen some selling.

The tragic events in Norway may also have markets on edge and police around Europe are on increased alert regarding security threats. Geopolitical risk remains an important reason for maintaining allocations to precious metals.


US Dollar Index – 1971-Today (Weekly)

Markets are spooked by the political theatre which continued in Washington over the weekend.

An eleventh-hour solution is expected before next Tuesday’s August 2 deadline when the U.S. Treasury has said that it would not be able to borrow any more funds.

At the same time, investors have cut their exposure to risky assets and the appalling fiscal situation in the U.S. is positive for gold and silver – whether the politicians come to an agreement or not.

The dollar and US treasuries look set to come under pressure in the coming weeks – especially treasuries which remains close to record historical highs (record low yields) after a historic 30 year bull run.


US Generic Govt 30 Year Yield – 1977 to Today (Weekly)

Political posturing and alarmist rhetoric about ‘catastrophe’ and ‘Armageddon’ has been used by many, including President Obama and Treasury Secretary Geitner, but a default is quite unlikely as ratings agencies may be unlikely to downgrade the U.S. with the global financial system already in such a precarious state.

Regardless of whether the debt ceiling is raised, the Federal Reserve will continue to purchase the Treasury’s debt and Uncle Sam can continue to print an endless stream of money in order to redeem its bonds.

Also, in a worst case scenario, President Obama has the power to ignore the debt ceiling limit and could declare a national emergency due to the threat of “financial Armageddon’, thereby making redundant the divided Congress. 

The debt ceiling will almost certainly be increased by next Tuesday which is bullish for gold and silver in the long term as it means that the dollar will continue to be printed en masse and the embattled world reserve currency will continue to be debased.

Throughout history, inflation, currency devaluation and currency debasement have never ended well.

Indeed, without exception currency debasement has ended in economic hardship for ordinary citizens. 

World’s Top 15 Largest Gold Producers by 2010 Output and ‘Peak Gold’ 

Bloomberg published last week a table of the world’s largest gold producers, ranked by 2010 production and based on data from London-based researcher GFMS Ltd (all figures are in metric tons).

Rank

Company

2009

2010

1

Barrick Gold Corp.

230.1

241.5

2

Newmont Mining Corp.

162.9

167.7

3

AngloGold Ashanti Ltd

143

140.4

4

Gold Fields Ltd

106.6

102.4

5

Goldcorp Inc.

75.3

78.4

6

Newcrest Mining Ltd

49.2

72.8

7

Kinross Gold Corp.

64.5

68

8

Navoi MMC

62

62.5

9

Freeport-McMoRan

74.8

52.9

10

Polyus Gold

39.2

43.1

11

Harmony Gold Mining Co.

45.2

41.7

12

Cia de Minas Buenaventura

41.2

34.1

13

Agnico-Eagle Mines Ltd

15.3

30.7

14

Zijin Mining Group Ltd

30.7

30.1

15

Iamgold Corp.

29.2

30.1

The figures are interesting as they show an increase in production is most of the major gold producers between 2009 and 2010.

However, the exception is with the African and South African producers where production fell quite sharply. The trend of falling gold production in Africa continues. 

Annual gold production in South Africa has plummeted to 220 tonnes – levels last seen in 1922.

South African gold output has been falling since 1970 when annual production was over 1,000 tonnes. Gold production peaked at this time and has been falling steadily. It has fallen by an incredible nearly 80% since 1970.

The phenomenon of “peak oil” is widely known of and debated however “peak gold” may be of as great import and may be a more realistic threat as a U.S. or global Depression would see demand for oil drop sharply. 

This would not be the case with gold and indeed demand for gold should increase in that event – due to safe haven and monetary demand.

SILVER
Silver is trading at $40.73/oz, €28.36/oz and £25.01/oz. 

PLATINUM GROUP METALS 
platinum is trading at $1,788.00/oz, palladium at $802/oz and rhodium at $1,900/oz. 

NEWS
(Bloomberg)
Gold Surges to Record as U.S. Debt Impasse Threatens Default, AAA Rating

(Financial Times) 
China and Iran plan oil barter

(Reuters) 
GLOBAL MARKETS-Stock futures drop, gold up on no US debt deal

(Reuters Africa) 
Gold hits record as US deficit talks stall

(Bloomberg) 
U.S. Stock Futures, Dollar Decline as Gold Gains as U.S. Debt Talks Stall

COMMENTARY
(The Telegraph) 
Angela Merkel Faces Revolt in Germany Over Rescue Deal

(Forbes) 
Swelling Nostalgia For Gold-Backed Money And A Balanced Budget Amendment

(Ebay Infographic)
Gold and Silver Sales on eBay 

(Reuters) 
How Americans buy gold and precious metals on eBay

(Citywire)
Citywire Montreux Video: the Philipp Vorndran Guide to Protecting your Assets

 

 

 

 

Mark O'Byrne

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