Gold

[JBmurc]

During this downturn, gold is about the only metal (or oil) that hasn't been smashed.

In oz dollar terms, it continues to rise quite nicely.

With all the soverign debt issues that will be felt for years to come, gold isn't going to crash anytime soon.

Has been a real bonus for ASX gold producers even though they have still been sold down by the fearfull market added bonus is the Oil price like the AUD also heading down so the likes of NAV with predicted costs of $800oz AUD may well be closer to $700oz an with the AUD goldprice now over $1400 many producers will be reaping in million's of more profits
Add the fact Inflation is at it's lows an ready to hit it straps soon AUD gold could well even surprise the Gold Bulls

[ENP]

"Gold will seem to be a hedge at first, but will ultimately crash in mid/late 2010"

Quote, Robert Prechter, Elliott Wave International and best seller of Conquer the Crash.

[shasta]

"Gold will seem to be a hedge at first, but will ultimately crash in mid/late 2010"

Quote, Robert Prechter, Elliott Wave International and best seller of Conquer the Crash.

If you look hard enough ENP you will find gold bulls & gold bears everywhere.

With the problems in Europe, & the US printing money, & the Indians & Chinese buying up Gold, in the short term its only going one way & thats up...

[ENP]

Well looks at what people are doing now days. They are paying off their debt, not spending on big new ticket items. So if no one is out there spending and debt is decreasing, then the money supply will decrease, businesses will make less profits, more unemployment = deflation.

[Skol]

If you look hard enough ENP you will find gold bulls & gold bears everywhere.

With the problems in Europe, & the US printing money, & the Indians & Chinese buying up Gold, in the short term its only going one way & thats up...

The chinese are 'not buying up gold'.
They say over the long term (in chinese terms that could mean anything) they will increase their store of gold.
Currrently they own 1054 metric tons which is absolutely infinitesimal in relation to their foreign currency reserves.

[JBmurc]

"Gold will seem to be a hedge at first, but will ultimately crash in mid/late 2010"

Quote, Robert Prechter, Elliott Wave International and best seller of Conquer the Crash.

there's a crash coming alright but it's not going be GOLD or any other metal or commondites it's going to be to do with the easy credit central banks have been making trillions of --yes we will not go back to a USA gold stardard like pre-73 gold would have to be priced in the 000,000 to back all the masses of fiat curreniecs created.

The evolving Euro crisis is expanding and deteriorating rapidly. In only one week since the $1 trillion EU proposed bailout, the following happened:

Merkel’s party got creamed in the regional German elections last week. This is paralyzing Germany politically.


UK’s Brown resigned and Cameron took over.


France’s Sarkozy threatened to pull out of the Euro and banged his fist on the table, making Merkel blink and leading to their disastrous German elections.


Now Germany bans short sales on Banks and CDS and sovereign bonds – revealing the panic out there in the EU.


EU is in total chaos politically, they cannot solve this crisis with their many nations who must approve each major fiscal measure like bailouts. The ECB and EU are not capable of the quick unilateral action like the Fed is capable of – meaning they are always behind the curve on this rapidly EU escalating sovereign bond crisis, which is spreading now to EU banks and CDS, not only sovereign bonds, and spreading to the Euro.


They say the Euro has never been tested severely like this since its inception in 1999/2000. The test is a huge FAIL. The Euro is falling in an out of control way.


ECB’s Trichet had to relent and do the nuclear option to buy bad paper (bonds etc) off the Greeks for starters. ECB loses huge credibility.


Net effect of the political and financial failures is huge uncertainty for the Euro and the EU.


This all leads to a Lehman like contagion, which is now in process. It’s all out of control.


EU and ECB are only reacting to this mess and are they not in control at all.


Contagion is spreading to all financial markets, and appears unstoppable.


Electronic trading and ETFs cause liquidity to dry up in minutes to zero (means crashes are not controllable whatsoever).


EU countermeasures are too late and are panicky – (they have lost control of the Euro and debt situation). Derivatives (like ETFs) have made markets highly susceptible to huge flash crashes. Attempts to counteract this only makes things worse. Markets are now totally out of control as circuit breaker measures in one market are merely circumvented by others moving to alternative markets/exchanges where they can still trade.
This list goes on but you get the idea.

Overall, you can say that the US housing crisis spread to the US financial system first, The US blew up first, but now the others with the same problems (EU) are breaking down, and as the world tried to reflate financial markets and succeeded with public money, that is now over and the new outcome is the EU region is the next ‘Lehman’ style crisis, but it’s a crisis of the biggest economic aggregate in the world the EU (Yes it’s bigger than the US).

Since Germany just acted unilaterally to ban short sales in the Sovereign bond market and CDS, it indicates a lack of EU financial coordination. Germany never wanted to do this bailout, and is dragging its heels, making any attempts at countermeasures too late to increase confidence. (CDS by the way have been the ONLY real market with real pricing for the last several years, and the CDS markets always led to the final deterioration and final ‘verdict’ before the crises of the day spiraled out of control. CDS are bets on debt defaults, their prices reflect the reality. Hitting the CDS market takes away any remaining market transparency. Now all markets are being hidden inside huge public purses).

What this means for markets

Overall, this means that the EU is in serious trouble. It means the EU has shown they cannot contain this situation. It probably means the Euro is going down to parity with the USD at least. If the situation is not brought under control, the EU itself is threatened, and imagine what would happen to the Euro if Germany or anyone bolts the EMU (Euro monetary union). The Euro would collapse.

The USD benefits, the carry trades are unwinding (USD, Yen and others). Gold benefits because it’s a major haven, even with the USD rallying hard and commodities tanking. Gold can still get dragged in if there is a huge world stock sell off, so be cautioned.

US markets benefit as money flees into the US, but still US markets are continuing to drop – this is hugely bearish.

Three weeks ago, we told subscribers that the Dow peaked at 11,000. The Dow peaked at about 11200. It looks like that call is going to hold up.

With Asian and EU markets down, commodities tanking due to expected economic slowing, and US markets down and looking to continue falling, and China already in the early stages of popping their construction bubble (60% of China GDP is construction related) there are no bright spots out there. The US recovery will stall and is stalling now.

[JBmurc]

'Sovereign Debt' was a phrase only found in the arcane prose of economists writing in academic journals until relatively recently. Since the 2008 near death experience of many large banks, internet blogs carried commentary on the subject, but only very recently has the mainstream media tuned into the issue of sovereign debt. Quite simply, they could not ignore the omnipresent financial clouds any longer.

What is 'Sovereign' Debt?

In its simplest form, ' sovereign' debt means 'government' debt, the financial debt of a country. It usually also means the accumulated debts of government sub entities such as states, provinces, municipalities, agencies, boards and commissions for which the senior government is ultimately responsible.

While existing government debt is the problem for today, contingent liabilities for promises of future services to its citizens dramatically complicates the current debt problem. Unfunded future liabilities are obligations which represent the one ton gorilla peering through the front window of many nations.

What does Debt 'Default’ Mean?

'Default' is a word similar to the word ‘bankrupt’ when referring to the inability of a private individual, business or institution which fails to meet its financial obligations. When debt is unable to be repaid, a formal declaration of this fact triggers a bankruptcy in a court of law. In the case of government, the inability to pay its accumulated debt from past spending, because it can’t raise adequate taxes or borrow additional funds means that government has become insolvent and thus forces a formal default on its debt.

Which Countries are Likely to Default on their Debt?

Daily revelations about the debt travails of Greece has trained the debt spotlight on other nations which are infected by a similar set of debilitating financial symptoms. Portugal, Ireland, Italy and Spain have boarded Greece’s sinking ship. These PIIGS are increasingly characterized as merely the frontrunners in a European marathon which could easily involve many more nations before long. But these five Euro member nations are only a small part of the sixteen Euro countries which are shackled by the constraints of a single currency. While Germany, Holland and a few other countries seem financially sound, many other members aren’t so well endowed.

To the Euro club can be added many other countries belonging to the larger European Union economic zone as well as select former Soviet satellite nations of Eastern Europe. More surprisingly still is how vulnerable certain very large first world economies have become. While it seems implausible, the United Kingdom, Japan and the United States are also rapidly attaining the unflattering attributes of the PIIGS, which means they too could be snared into the debt and default trap before it snaps shut!

What Makes Countries Susceptible to Debt Default?

Too much debt, but what is too much? Annual deficits exceed 3% of the Gross Domestic Product is the standard the European Central Bank sets for its 16 ‘Euro’ member countries. 25 of 27 European nations are currently running annual deficits in excess of 3% of GDP. Ireland is at 14.3 %, France stands at 8% and Germany is at 6%. Greece stands at 12.5% of GDP. What this means is that government spending continues to escalate rapidly while their economies, upon which taxes are levied, are far less robust.

Debt accumulated from excessive spending in previous years is the cause of the looming financial crises. Economists Reinhart and Rogoff recently published comprehensive new research covering two hundred years of economic history which concluded that countries which reached debt levels of 90% of their GDP, rapidly descended into the flames of default hell. Many of the nations noted above are already close to this level of debt while others are turbo charging toward the 90% precipice of no return.

Given that current interest rates are at multigenerational lows, it seems entirely plausible that when interest rates start rising, the burden of higher interest rates on the bonds issued to secure additional borrowed funds, will become virtually unserviceable. If interest rates were to double from their current 3% levels on 10 year maturing bonds or double from the current 5% on 30 year bonds, most of these nations would very quickly reach the brink of default.

What are the Common Characteristics of Debt Default Candidates?

With the exception of Japan and the United States, all other default candidates are European. Many have advanced first world economies with high standards of living. Most share political traditions and values whereby the welfare state ensures high living standards and guarantees protection and security against most of life’s challenges for their citizens. Cradle to grave security requires ever higher levels of savings and investments which result in wealth generation and serves as a growing tax base sufficient to deliver on promises of current and future benefits, especially with the universal demographic of rapidly aging populations.

Virtually all countries subject to concerns about default show shortfalls in economic growth resulting in anaemic tax revenues requiring more credit and borrowing in order to compensate. Now that credit is either tightening or isn’t available and interest rates are rising again, this game of spend and borrow is about to end.

Can Debt Default be Avoided?

We are all faced with a daily deluge of metaphors by virtue of media coverage of the evolving financial carnage in Greece. “Dominos’, ‘Deck of Cards’, ‘Greek Contagion’, ‘Greece is the Precedent’ and ever more alarming and inventive terms.

We might remember the alarm we experienced less than 2 years ago when the largest investment banks seemed to be taking the entire world into a financial abyss. Over US $700 Billion was allocated immediately by the U.S. Congress to the Treasury Secretary for whatever mitigation measures were thought necessary. The Federal Reserve Board followed with many other exceedingly inventive measures costing US $Trillions of borrowed taxpayer dollars designed to lubricate creaky financial joints. This was government bailing out private institutions in the financial sector.

What happens, however, when governments themselves require emergency financial assistance? Greece represents only 2.5 percent [%] of the Euro club GDP economy, yet it has taken weeks to arrange US $140 Billion of assistance. What happens when countries with much larger economies and needs ask for assistance? The International Monetary Fund is making itself visible, but after the recent levy on member nations, they have only managed to bring their kitty from US $50 to $500 Billion. Spain, Italy or the UK could mop that amount up in short order. Then what? Financially broken nations will be funding other financially broken nations. That is what the almost US $1 Trillion joint Euro/EU/IMF hurried announcement of Sunday May 8th represents. Does that seem like a workable plan? What happens when the banks who are creditors of these nations line up for assistance again, as they did in late 2008? Who bails them out this time when their own governments are broke?

A cynic might even suggest that sovereign debt bailouts are not primarily designed to assist nations nearing default. Rather financial assistance to nations simply allows them to pay their obligations to their foreign bank creditors who hold the bonds of the nations nearing default. In other words, collective efforts from the likes of the French, German, British, Spanish governments and others, is merely an elaborate ruse to keep their own banks solvent from the impending default of other nations.

The staid and highly regarded Bank of International Settlements based in Switzerland recently issued a sobering report in which it stated the need for “drastic measures...to check the rapid growth of current and future liabilities and reduce the adverse consequences of long term growth (of debt) and monetary instability.” It went on to note that there is currently over US $600 Trillion of global financial Derivatives Debt...which is 10X annual global GDP.

What Does the Future Hold?

The magnitude of current private and government debt, coupled with massive unfunded contingent liabilities for promises of future services to their citizens, is simply impossible for many nations to fund. Massive inflation in the money supply will become the preferred vehicle to deflect the default monster, but it will result in vastly devalued currencies and price inflation as a prelude to default. Their objective is to buy time to stave off the inevitability of default. Buying time might also allow the tooth fairy time to arrive with a magic solution.

Standby for a daily diet of social unrest caused by persons whose comfortable lifestyle and elevated standard of living is about to disintegrate before their eyes.

Protect yourself with precious metals investments. Gold and silver in the form of bullion or mining company shares will give you peace of mind. They are 'real money' and will be your safe haven during the very financially troubled and volatile period ahead. Further complement such investments with other commodities such as base metals, oil and gas and agricultural grains - all of which are investments which will shield you from inflation and currency devaluations but steer clear of fixed interest rate investments.

Arnold Bock

[Phaedrus]

I hesitate to add fuel to the gold debate and view "cut and paste" postings as evidence of intellectual bankruptcy - but take a look at this chart from chartoftheday.com :-



For the last 10 years gold has been a better investment than US stocks. Pre 2000, stocks were better than gold. Interesting chart eh?

[Skol]

Correct Phaedrus, but have a look at 1980/2000.
The Dow was a better investment than gold for those 20 years and gold pays no dividend.
Since stocks have been a lousy investment for the last decade it's reasonable to assume they have to do better in this decade.

[STRAT]

Correct Phaedrus, but have a look at 1980/2000.
The Dow was a better investment than gold for those 20 years and gold pays no dividend.
Since stocks have been a lousy investment for the last decade it's reasonable to assume they have to do better in this decade.

Why is that Skol. What goes up for 20 years surely could go down for 20?