Well, we think you will agree that Gold's pretty abrupt turnaround this month has been pretty well documented - as it happened - on this page. Three weeks ago, on May 27, we put Gold and silver bar charts up at this page and wondered out loud if Gold was about to follow Silver higher. It did. Two weeks ago, on June 3, we put a point and figure chart of Gold in Euros up on this page as it was challenging all time highs and pointed out what a sea change it would be for the financial world if Gold was to break through to new all time highs in Euros.
(Last week, on June 10, we followed that up with two Euro Gold charts as Euro Gold DID break through to new highs.
Now, here's a quote from a particularly perceptive Gold trader, as reported by Marshall Auerback on Prudent Bear:
“I actually think that for the first time during this entire rally, you could argue that gold is genuinely benefiting from concerns people have about currencies”
The gentleman to whom the quote is attributed is Mr Kamal Naqvi, a precious metals anlayst with Barclays Capital. Please note that Mr Naqvi didn't single out any particular currency, he spoke of (all) currencies. Suddenly, the worst nightmare of Central Bankers and governments everywhere has poked its head over the horizon. There is speculation that investors might be starting to view (paper) currencies themselves as potentially risky. And not just any currency - ALL currencies.
When the potentates of the G-8 nations meet in Gleneagles, Scotland on July 6-8, the ostensible top item on their agenda is forgiveness of third world debt. Wanna bet? It is a VERY safe bet that this new skepticism which is starting to invade financial markets concerning the viability of their currencies will be what is talked about. Of course, it will NOT be talked about in public, perish the thought.
A week before that meeting, at the end of June, the FOMC meets and decides whether and how much to raise official US interest rates. As it has been for a year, the universal expectation is for another 0.25% rise. That, if it is implemented, would be the ninth in a row. As usual, the amount of the rise will be of minor interest to the financial world. What will be of major interest is what the accompaning press release has to say. Many people are betting and most are hoping that the Fed will make some indication at this meeting that they are done with rate rises, at least for a while
Rapidly increasing US debt levels, like the current account deficit which reached $US 195.1 Billion in the first quarter of the year, are reaching a level at which they are not affordable at much higher interest rates. On the proverbial other hand, a move to cease raising rates, let alone any suggestion that rate "cuts" might be re-appearing on the radar screen, would add pressure to a US Dollar that is once again exhibiting some weakness.
And what of the ECB? Well, their next major meeting is right smack dab in the middle of the G8 meeting. On Thursday, July 7, the ECB will announce their latest decision on official European interest rates. Remember, these European rates have remained unchanged at 2.0% for more than two years now. Should the ECB continue to resist growing pressure to raise their rate, they risk the Euro. Not necessarily a renewed fall against the $US, although that is certainly possible. What they risk is for the skepticism about the Euro which has been a feature of the past two months getting worse.
Of course, both the ECB and the Fed and all of the rest of the world's Central Banks face the same basic problem. ALL of their currencies are nothing more than paper IOUs. NONE of them have any genuine claim to the title of a viable money. Since they are all "legal tenders", they still function as a medium of exchange, but their future purchasing power is steadily becoming ever more suspect.
Something is deemed politically "unthinkable" when the political (and financial) powers that be have been thinking indeed very hard about it. History is strewn with the wreckage of nations which heeded to late the "concerns people have about currencies". There are no Central Bankers in the world, most assuredly including those in charge of the nations meeting in Scotland next month, who do not wake up sweating on occasion at the prospect of just such concerns.
Clearly, there will be a concerted (to put it mildly) effort to prevent any further development of the rising concern about currencies shown on the markets this month. And, it is true, such efforts have been successful for a long time now, more than two decades in fact. The problem is that a day of reckoning is inevitable, and the longer it is postponed the worse it will be when it finally arrives.
It should have been clear to Americans for four years now that Gold represented a more viable long term investment than anything else they could buy with their US Dollars. Note here that we said LONG TERM. Real estate is king of the hill now, but an American who thinks it will last should visit Australia. They would soon learn otherwise.
But to the vast majority of Americans, Gold is what Olympic medals are made out of, and that's about it. At least, that was it up until about a month ago. But the sudden emergence of this concern about currencies is very real, and while it may be damped down for a while, it is not going to go away. As long as no circulating currency in the world is redeemable in Gold, it will never go away.
What we have seen so far in June is the tip of the iceberg. As already stated, the global financial powers that be are acutely aware of the dangers, having brough them on in the first place. They will, as they always do, attempt to stem the rising tide right up to, or possibly beyond, the point where their only choice is to retreat or drown.
For those who OWN Gold, it will be fun to watch this predictable process. For those who don't, it won't be any fun at all. For a European, Gold is at its most "expensive" ever in Euro terms right now. For an American, it's still almost $US 20 lower than it was last December. But for EVERYONE, EVERYWHERE, it is the only SURE protection against a debt and paper money meltdown. It is also the only MONEY that will allow a peaceful night's sleep bereft of all "concerns people have about currencies". A Dollar or a Euro is a "currency" - Gold is MONEY.