Another Record High For Gold

Zero Hedge reports about Another Record High For Gold.

(emphasis mine) [my comment]

Another Day, Another Record High For Gold
Submitted by Tyler Durden on 04/07/2011 10:04 -0400

If one scours the newspapers, maybe, just maybe, one may find reference, in the page 13 fine print, that
gold prices keep hitting fresh all time highs each and every day. The rumor now is that petrodollars have had their fill of EURs (which they have been buying instead of USDs) and are migrating to PMs. Another catalyst is the earlier announcement by Jean-Claude Trichet that the rate hike may not be the first in a series, confirming the vacillation by the European Central Bank. Until we see confirmation we will let this rumor be. One thing we are certain of: there are more buyers than sellers.

Gold touching a new all time high:


http://www.zerohedge.com/sites/default/files/images/user5/imageroot/bernanke/Gold%204.7_0.jpg

Below is a more recent chart from 24-hour Spot Chart — Gold.

Live 24 hours gold chart [Kitco Inc.]

The potential government shutdown on Friday

Seeking Alpha reports that gold has surged to new record highs ahead of a potential government shutdown on Friday.

Gold: Now More Than Ever
by: Peter Grant April 07, 2011  | about: GLD

As I previously wrote:

Gold has surged to new record highs above 1450.00 [$1464] as the political circus over the budget and debt limit ramps-up ahead of a potential government shutdown on Friday. The President has summoned leaders from both political parties to the White House this morning with the hope of nudging them toward some kind of compromise that will allow the government to continue functioning after the end of the week. While Mr. Obama has expressed optimism that something can be worked out, it seems that the parties have dug in their heels.

FY2011

The first order of business is to come to a decision on budgetary matters for the remainder of FY2011. A patchwork of CRs is no way to run the world's largest economy, particularly during a time of economic duress. Arguably the uncertainty is hindering the recovery as our Representatives squabble over chump change. As I pointed out in the same report cited above (referring to PIMCO's Bill Gross),
when unfunded entitlements are factored into the equation, we're already facing a $75 trillion total debt burden. So, whether you're talking about cutting $30 billion or $100 billion from current spending levels, in the long run it's all rather pointless. It's theater for those who still think $100 billion is a lot of money.

FY2012

When Paul Ryan, Chairman of the House Committee on the Budget, offers up a plan for the FY2012 budget that he claims will reduce the deficit by $4 trillion, it certainly sounds more serious. … Serious enough? Doubtful.

Ryan's plan is called the The Path to Prosperity: Restoring America' s Promise -- catchy -- and is being pitched as a choice for two futures. According to Ryan (who cites the CBO),
on the current borrow-and-spend path, the U.S. economy will reach a critical debt-induced tipping-point by 2037 [much, much earlier. 2011 is a better guess (yes, we are already there)]. …

March Madness

IN MARCH ALONE, THE FEDERAL GOVERNMENT SPENT EIGHT TIMES THE AMOUNT OF REVENUE THAT IT TOOK IN. The difference was, of course, borrowed. I think everyone would acknowledge that something must be done in order to prevent a full-fledged debt crisis in America. Sadly, I think Bill Gross' guess on what that something might be is closest to the truth. In PIMCO's Investment Outlook for April, Gross said:

Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies — inflation, currency devaluation and low to negative real interest rates.

Early in the month of March, Erskine Bowles, the co-chair of President Barack Obama' s National Commission on Fiscal Responsibility, told the Senate:

I think
we face the most predictable economic crisis in history. A lot of us sitting in this room didn't see this last crisis as it came upon us. But this one is really easy to see. The fiscal path we are on today is simply not sustainable.

This debt and these deficits that we are incurring on an annual basis are like a cancer and they are truly going to destroy this country from within unless we have the common sense to do something about it.


The $14.29 Trillion Debt Ceiling

Yesterday, Treasury Secretary Geithner sent a letter to Senate Majority Leader Harry Reid, predicting that
"the debt limit will be reached no later than May 16, 2011," and that there would be dire consequences if that were allowed to happen.

Geithner attempts to provide some comfort by reminding us that “increasing the limit does not increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations that Congress has already established.” What he doesn' t say is something I've been saying for years:
The U.S. government has never met a debt ceiling it couldn' t meet and ultimately exceed. According to the Treasury Secretary, there is simply no option: The debt ceiling must be raised or the U.S. faces a default. However, in doing so, it pushes us toward that same end result.

The recent collapses of the governments in Portugal and Canada, along with the geopolitical unrest throughout the Middle East and North Africa, remind us of just how quickly governments can become destabilized. I don't think America is anywhere close to that point yet, but faced with a possible shut-down of the government and the inability of the government to finance the debt going forward, Geithner warns that "government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds." One would have to acknowledge that we seem to be hurtling ever closer to the precipice.

Gold has served as a store of wealth for thousands of years, through wars, economic calamity and of course political uncertainty. Gold is a physical asset that is not simultaneously someone else's liability. It tends to be non-correlated with more traditional asset classes like stocks and bonds. Perhaps most importantly, given Gross' warnings, it tends to have an inverse correlation with the dollar. The appeal of gold as a shelter for stormy times is likely to continue to grow, even as supplies become tighter, which will have a supportive impact on the price.

China's soaring gold demand

Ibtimes.com reports that China Hints at Purpose for Gold Accumulation.

Lear Capital: China Hints at Purpose for Gold Accumulation
By Lear Capital | April 7, 2011 7:42 PM GMT

It's no secret that China's gold demand is soaring.  They are buying mines, concentrates from which to extract gold and as much physical gold as they can secretly buy in world markets.

Reports also indicate,
THE PEOPLE OF CHINA ARE BEING ENCOURAGED TO BUY SOME GOLD WITH EVERY PAYCHECK as the future of the world economy is uncertain at best.  As world debt expands, currencies are debased and gold prices rise as a result.

Frustrating, is the fact, that
the Chinese approach to dealing with a global debt crisis is to equip its government and its people with gold, in order to withstand the fallout of a potential Global Debt Crisis II.  An approach perfectly opposite of our approach to the debt crisis - one that encourages borrowing and spending.  

So intense is China's desire to own more gold that one has to believe there is greater purpose to its strategy.  Perhaps we gain a little insight, as to what that strategy is, from A REUTERS RELEASE TODAY THAT SPEAKS OF CHINA'S DESIRE TO POSITION THE YUAN AS A NEW RESERVE CURRENCY.

Some believe, the dollar has only a short time remaining in its role as the world's reserve currency [That would be me].  When modern day printing of more dollars, only requires a few keystrokes at the computer, it's no wonder the dollar has become suspect.  It seems now only a matter of time before the dollar is replaced, at least in part, as the king of currencies.

This leaves us to wonder, what happens when the event occurs?  Of course there are many variables. 
Some believe China's appetite for gold is for the purpose of backing, or partially backing the yuan with gold.  It is argued that the gold standard will never return as there simply isn't enough gold to back all the money that exists.  But, what about a currency partially backed by gold?  Surely, such a currency would have to carry some additional clout as it could not just be printed without adding more gold to the coffers.

Rumors have long been circulating that Arab nations were also considering a gold backed Dinar.  Now throw in the possibility of the IMF creating the equivalent of a gold backed currency (a story in itself for another time) and a trend appears.  Finally, let's add some drama.  Just days ago, the Utah House of Representatives passed legislation that would make gold and silver money again.  Money it would accept for payments of certain state taxes.  The bill even proposed some tax breaks for those who would pay with gold and silver coin.

As the dollar, albeit penny by penny, is replaced by alternative currencies backed by gold, one would expect its value to shrink.  Where might this send the gold price?  One can only speculate that THE LIMIT TO THE HEIGHTS THE GOLD PRICE MAY REACH WOULD ONLY BE LIMITED TO THE DEPTHS IN WHICH THE DOLLAR VALUE COULD FALL.

Don't get caught short. 
Demand for physical gold is rising around the globe.  At Lear Capital we believe everyone should own some [me too]

My reaction: It was about time for another entry on gold!

Gold prices keep hitting fresh all time highs each and every day. (gold is now at $1464)

Reasons for gold' s rise


1) The potential government shutdown on Friday. The debt ceiling must be raised or the U.S. faces a default.

2) Petrodollars are rumored to have had their fill of EURs and are migrating to PMs.

3) The government' s continuing massive deficits. (In March alone, the federal government spent eight times the amount of revenue that it took in.)

4) The recent collapses of the governments in Portugal and Canada and the geopolitical unrest throughout the Middle East and North Africa.

5) China's soaring gold demand. (The people of china are being encouraged to buy some gold with every paycheck.)

6) China's desire to position the yuan as a new reserve currency. (The dollar has only a short time remaining in its role as the world's reserve currency)

7) New legislation, passed just days ago, by the Utah House of Representatives that makes gold and silver money again. (The bill even offers tax breaks for those who would pay with gold and silver coin)

8) The Federal Reserve' s second round of quantitative easing (money printing).



9) The falling dollar. (gold has an inverse correlation with the dollar)



10) Rising global demand for physical gold


Conclusion:
Buy physical gold. As the article above states, “the limit to the heights the gold price may reach would only be limited to the depths in which the dollar value could fall,” and there is no limit to how far the dollar could fall.

“Gold has served as a store of wealth for thousands of years, through wars, economic calamity and of course political uncertainty. … The appeal of gold as a shelter for stormy times is likely to continue to grow, even as supplies become tighter.”

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One Response to Another Record High For Gold

  1. Tyrone says:

    Yes, FOFOA had an interesting article on China and gold. Here is a fragment...
    .
    So if China wants to reduce its trade imbalance with the West it appears to have three options. 1. Increase imports that would feed into increased domestic investment. (But with China's yet-empty cities and shopping malls, increasing domestic investment may be an uphill option.) 2. Somehow get its people to stop saving or 3. consume more. In fact China has a fourth option. Encourage their citizens to buy gold, combining savings with consumption.

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