Wednesday, October 26, 2011

Are Gold and Silver Prices telling Us Anything?

The meetings in Europe discussing the planned plan for a plan are not going well. Mr Sarkozy and Ms Merkel are not being friendly to each other.

Apparently there are reports of Sarkozy making snide remarks about Merkel eating cheese when she was supposed to be on a diet.

But, the Europeans kinda work this way. Full of emotion and memories of conflicts past, they find it difficult to let go of their national superiority complexes for the good of the euro-dream.

Gold up $50 and silver up $1.50 per ounce. Are we to make anything of this today? Is this a result of markets getting fed-up with the squabbling and lack of finality to the debt crisis in Europe? Are these jumps in prices signalling the end of the euro-dream?

Bottom line. It looks like it. Will it happen and when? Who knows.

Nobody wants to lose money when Greece defaults. Banks may agree to a 40% loss but the politicians want 60%. Even the prospect of a $1,200,000,000,000 (that's 1.2 million million) EFSF Fund doesn't appear to be able to calm the markets.

Then there is that contagion problem. There was chatter this week that the reason why Bank of America moved it's enormous derivative numbers to it's depositor's trading accounts was to protect itself from the coming decimation of European banks. BOA apparently has massive CDS exposure to Europe from it's Merrill Lynch merger. It wants to slap that European bank exposure onto the US taxpayer. You see, structuring their derivatives this way means BOA is now insured by the FDIC, the US Government funded insurance company.

How would the 'Occupy' movement react to bailing out Europe? Not well I would think.

The other issues in the wind, are talk of another US Debt downgrade in a few weeks (good for gold as the US dollar will take a hit) and talk of the Federal Reserve itching to do some more Quantitative Easing (printing).

And let's not forget US State debt, now estimated to be over $4 trillion. Any one State defaulting could be a Lehman's moment.

The world economic system is on a precipice. It seems like he Europeans are arguing while the house crumbles around them.

Will gold and silver prices head up from here? Probably, but even if they don't, this volatility is like a spinning top winding down (remember the movie 'Inception'). It slows and wobbles violently. Then falls.

A good read for you today is from James Turk over at King World News. It is a worthwhile view on where the gold price should be. Will it reach this price? I wouldn't like to see the state of the world economy if it did.

Gold in New Zealand dollars: $2140.52 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $41.76 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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