Gold Reaches $1300, Silver At 30-Year Price High
As Dollar Collapses & Euro Shows Stress
Gold flirted with $1300 on Friday before retreating slightly to $1298 on the close. This morning (Monday), December gold in the futures market traded up to $1301.30, and spot gold reached $1300.40. Silver reached a 30-year high of $21.40 and is outperforming gold so far this year. The main cause for the rise was the rapid fall in the dollar last Wednesday, following the Federal Reserve's announcement that it would likely take up "quantitative easing" soon, to fight the forces of deflation. The dollar collapsed 3% to the euro in 48 hours, while the euro itself was showing signs of weakness to other currencies after the resumption of credit problems in the "PIIGS" nations, most notably Greece, Ireland and Portugal. Russia also had currency issues.
The Bottom Line: Gold reached another all-time high near $1300 per ounce, while silver traded at a 30-year high.
The Federal Reserve Pushed the Dollar off a Cliff - Boosting Gold's Price
The Federal Open Market Committee (FOMC) meets about eight times per year in the most closely-watched gathering by Fed governors. Their "action" is minimal - they generally leave interest rates alone - but investors watch every word of their policy statement summaries for clues as to the Fed's next move.
Last Tuesday and Wednesday, the FOMC met after a week in which inflation was starting to brew in the Consumer and Producer Price Indexes, so the investment community expected at least a nod toward the fear of inflation, but the Fed surprised everyone by saying that the forces of deflation still hold the upper hand. To fight that deflation threat, the Fed vowed to undergo another round of "quantitative easing" (QE-2) by buying more Treasury notes and bonds, thereby helping to keep U.S. interest rates low.
The initial reaction after last week's inflationary FOMC statement was that the dollar collapsed and gold soared to new highs above $1290. The euro rose from $1.30 to $1.34 in 48 hours, reaching its highest exchange rate since last April. Other currencies also weakened (especially the Russian ruble), but the dollar was even weaker. Many currencies seemed to be in a "race to the bottom," to see which could be devalued the most. Even former Fed Chairman Alan Greenspan said last week that "fiat money has no place to go but gold," further fueling the gold rush. Other currencies - especially in countries with higher interest rates, such as Australia and New Zealand - also continued to appreciate significantly to the dollar.
Mainstream Analysts "Jump on the Bandwagon"
Bank of America expects to see gold reach $1,500 within a year. (That's called "jumping on the bandwagon." We predicted that figure a year ago.) According to Bank of America's commodity research team, the move by central banks to diversify their reserves amounts to a "new gold rush." Other reactions:
Increased Gold Sales this Year
In "normal" times, say the 1990s, the majority of gold buyers are using the metal for jewelry or for filling teeth. In such markets, gold trades flat, like a commodity, remaining stable. But now, investment demand is driving gold up. When global tensions rise, currencies collapse and debts soar, driving millions to gold:
Paper Currencies Race to the Bottom - Leaving Gold the Only Survivor
Former Federal Reserve Chairman Alan Greenspan shocked the world last week when he told the prestigious Council of Foreign Relations (CFR) that "Fiat money has no place to go but gold." He said that explanations for treating gold as "just another commodity...don't pan out." He explained further, in words that recounted his old gold-standard days with Ayn Rand in the 1950s and 1960s: "If all currencies are moving up or down together, the question is: Relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it."
In last weekend edition of The Wall Street Journal ("On the Secret Committee to Save the Euro, a Dangerous Divide," Sept. 25-26, 2000), there was a fascinating chronicle of how European leaders set up a secret task force two years ago, after the fall of Lehman Brothers launched the global financial crisis. Its mission was to "devise a plan to head off default by a country in the 16-nation euro zone." The name of the committee was secret, but in shorthand they called it "the group that doesn't exist." Their mission was to plan ahead for a collapse of Portugal, Ireland, Italy, Greece or Spain - the "PIIGS" of Europe.
The crisis came to a head last May, but it hasn't gone away. Portugal and Ireland in particular have lots of trouble selling their sovereign debt. Ireland, once the "miracle economy" of Europe, is in a tailspin. Last Thursday, Ireland's Central Statistics Office announced that its second quarter GDP declined fell by 1.8% and consumer spending declined 1.7%.
RARE GOLD COINS MARKET UPDATE:
Indian Gold Shortage, Prices are Beginning to Rise
Many better $2.50 and $5 Indians are tough to find and many MS-64s are intermittently unobtainable. $20 Liberties are surging. Premiums are trending higher on slightly better Type III $20 Liberties in MS61 - MS64 due to a sudden spike in demand.
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