Throughout the world traders in gold and silver have joined in the general lack of confidence as indications of a global slow down gather pace.
Reports from China suggest, despite official denials, that sectors of the economy are facing problems, construction is a case in point, and that the nation may be on a fast track to crisis. As China has overtaken India as world leader in gold imports, the knock on effect on the gold price needs no amplification. One good reason why gold is not about to break out.
BRICS Face Problems
India, where earlier in the year the government raised import duties on gold in an attempt to curb imports, has seen a surge in the last week of scrap gold sales which is likely to result in even lower gold import demand.
Oil and gas are Russia’s two major exports. Energy prices are down, with possibly more to come, so the worlds ninth largest economy and sixth in spending power is facing headwinds.
All four BRIC economies are or have been active purchasers in the gold bullion market. If they are, or will have to, scale back their activity then gold is not about to break out!
Now A New European Scenario Is Inevitable
It will take time for the major global economies to adjust to the new scenario in Europe, whatever that may be. Greece now looks an odds on favorite to leave the euro, causing a scale of chaos that no one can anticipate. Should it stay in then that will mean yet more money printing to store up an even greater eventual wave of hyper inflation.
No wonder Germany is digging in over loosening fiscal control of the currency to printers and eurobonds etc. The memories and anecdotes of the aftermath of the first world war when inflation ran rampant and wiped out the savings and livelihoods of millions to give rise to the Hitler regime have yet to fade, so who can blame them!
Forget the US Dollar As A Safe Haven
That leaves the good old USA. Rapidly becoming the world leader in political and banking corruption, led by a president strong on rhetoric but weak on effective action, and with no better waiting in the wings should he fail to get re-elected, the nation is committed to the dollar printing press.
Bernanke knows that the more dollars that get churned out, with no more value than the paper they are printed upon, then the US debt will become easier to manage while the world, with China in the lead, treats the dollar as a safe haven currency.
Of course the Chinese are not that stupid but for the time being at least exports paid for in US dollars keep their factories employed. Others that put their faith in the dollar better keep their wits about them particularly if the Chinese pull the plug all the way out.
The dollar will not then be the currency of the last resort, any more than any other currency not backed by hard assets and that, right now, means none! That is when we will see gold, silver and PGMs take off along with other finite natural resources for which there is no substitute. Until then gold is not about to break out.
US Problems Not Going Away
But for now long term investors in gold and silver should hold their nerve. Despite the much publicised new found oil and natural gas resources in the USA, developing problems in housing, industry, banking and employment are coming to a head, massaging the figures can only be sustained for a limited period before the truth comes out, especially if Obama loses at the election.
Sooner or later gold will make its move, we anticipate that the end of the year will see the possibility of $1500 an oz a distant fear. Meanwhile should that price not become a floor and a lower level is reached look upon it as an opportunity to load up.
If you are one of those investors that have taken the cash route, and we think you are justified, think of the alternatives. If you can think of a better haven for your money when the “*%&# hits the fan” please let us know what and why.
One last thought, it is reported that the Swiss are looking at the idea of a “gold franc” as an alternative to their currency being debased. From Fund managers to retail investors as uncertainty reigns, cash is king along with US treasuries and that is why gold is not about to break out – yet!