Au Up on EU Crisis + Possible Q3Eurozone hits the fan: Gold price surging; Silver begins to make a move
TheEurozone crisis goes from bad to worse and QE3 looks to be on thehorizon in the U.S. again. Gold and silver have moved up sharply andthis path could well continue as bad news proliferates.
Author: Lawrence Williams
Posted:Wednesday,13 Jul 2011
LONDON -
For some weeks and months now, commentators writing on Minewebhave seen the current Eurozone debt crisis escalating to the point ofdefaults and despair. To a great extent the general public has let itpass by. Probably 99% of the population has taken the view that this issome temporary phenomenon and won't impact their lives. But this headin the sand attitude is at last beginning to change - in Europe at least- and no doubt the realisation is beginning to dawn across the Atlanticthat this is not just a European crisis, but a global one. Many of theproblems that are currently besetting the Eurozone are endemic in theU.S. at state level too and slowly, but surely, as poor economic databelies any talk of economic recovery, the realisation that things mayget far worse before they even start to get better is beginning to dawnin the world's biggest economy as well.
Today in Europe the mainstream news broadcasts are full of Eurozonedebt related stories: Irish debt downgrade to junk status followingPortugal; talk of Greece being allowed some form of default; the loomingdebt crises in the big economies of Italy and Spain - the Eurozone'sthird and fourth largest - coming to the fore again. We are looking atfinancial collapse in a string of possible defaults across Europe and ifthey occur one doesn't see how the global banking system can survive.Those who have been preaching that gold may be the only investment outthere which stands much chance of preserving one's wealth - the ultimatesafe haven - look like their views may be being vindicated as I writewith the gold price jumping up through $1570 and back within a hair'sbreadth of its intra-day high of a couple of months ago. It is almostcertainly going to set a new London Fixing record this morning (indeedwill have done so by the time this article sees the light of day) andthe breach may extend all the way up to $1600, although last time we sawthat coming back at the beginning of May we were quicklydisillusioned. But this time it looks to be different!
There is now again official talk in the U.S. of a continuation ofsome additional financial stimulus from the Fed being necessary toprevent the U.S. economy falling into recession again - QE3 by any othername - and even China, which has been seen as the globe's saviour withits seemingly unending economic growth is facing severe inflationarypressures which are forcing the government there to tighten ever morewhich ultimately has to dent that economy's advance, although still onlyback to a level that most Western governments would give their eyeteeth to achieve. The QE3 talk dented the dollar, which had been risingagainst the Euro over the previous few days, giving another boost tothe dollar gold price.
Not surprisingly with all the doom and gloom in the financialmarkets, gold - and at long last silver - are beginning to make a newserious move to the upside after a couple of months languishing in thenorthern summer doldrums. This summer the dull period may well beending very early for the precious metals!
The move also seems to be very much towards holding physical gold andsilver too. ETF holdings have been static to falling much of this yearand perhaps, as the realisation dawns that even the biggest globalbanks are far from safe from collapse in the current economicenvironment, physical metal will come to the fore more and more,although the storage problems for significant quantities of gold, andparticularly silver, should not be underestimated. The location whereone should store precious metals is also something to be considered.Might the U.S. confiscate gold again ahead of a major revaluation?Perhaps unlikely but the possibility will remain in people's minds.
There are signs too that silver may be beginning to move up again ongold's coattails. The gold:silver ratio (GSR) remains at around the43:1 level and the basic fundamentals whereby silver has a much moreprevalent industrial usage percentage than gold could mean this sectorof demand may suffer in a continuing recession. However, as Eric Sprott- and many others - continuously point out the volumes of silver tradedare enormously in excess of the actual supply and it would not takemuch to create the impression of big supply shortages should more andmore people demand delivery of physical metal which could just bebeginning to happen. As an investment metal silver has some majorattractions in terms of price with the small investor able and willingto buy relatively large amounts, which with a gold price in the high$1500s they may be unwilling psychologically to do with the yellow metalitself - whatever they see as its investment merits.
Silver has proved to be much more volatile than gold - on the upsideand on the downside - and any prolonged rise in the gold price willlikely see silver move up even faster - and if this starts to happenmomentum could build again as it did in the first few months of thisyear. Whether silver will ever get back to a GSR of 16:1 as Eric Sprottpredicts may be yet be a very long way away, but one could certainlysee a return to around 30:1 which could see silver outperforming goldagain quite substantially. But then maybe too many fingers got burnt insilver's run up to close to $50 in April/May - and subsequent fallbackto around $32 - for a quick recovery to occur, but overall, if goldcontinues to move up silver will still probably rise faster inpercentage terms and if the market starts to see the earlier sharpdownturn as overdone this advantage could accelerate.