GoldForecaster.com (BENONI) – I thought we could ignore the Eurozone debt crisis for a while, but it was not to be. The tone in Europe is not good. Apart from Italy paying Morgan Stanley $3.4 billion to exit derivatives they thought would help their debt burden it is becoming clearer that the trail blazed by Greece may be the one that Spain and Portugal may have to follow to their harm.
Let’s face it if the recession in Greece is a depression then the protracted debt solution now achieved for Greece just won’t work. Greece must default. But at least the long negotiations allowed the banks to get rid of a lot of debt and the E.C.B. has ensured no banking crisis will occur, but solutions, still elusive!
The euro’s performance this week has reflected that tone, but amazingly the gold price has moved with the euro but in a more exaggerated way. Silver has been taken along with gold.
Gold is in a completely different world to the euro so it should not be following it.
Most observers have been conditioned to believe that gold will move in the opposite direction to the U.S. dollar. That’s happened this week as the rise in Treasury yields attracts ‘carry trade’ business home. But there is no ‘fundamental’ reason why the dollar should rise. Yield rises pose great dangers to the U.S. and its economy. That’s why the Fed wants rates held down for the next couple of years. They don’t want the trouble higher interest rates will bring to the world. But they are coming.
Do yourself a favor and look at the structure of Indian gold Exchange Traded Funds. We thought they would never take off because of the link between government and the banks and the distrust Indians have in their own government. But these are very different from those in the developed world. These offer physical redemption of gold to investors. This allows the lines between long-term holding investors and the gold manufacturing industry to be blurred somewhat. But this still leaves control over investor’s gold firmly in the hands of the banks. The banks hold that gold in a ‘pool’ or allocated state.