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Why gold is getting dragged down by the euro crisis

Posted on 13 December 2011 with 7 comments from readers

With gold prices hitting a devilish $1,666 per ounce today, a seven-week low for the precious metal, some explanation is called for as the worry over money printing by central banks has seldom been higher.

Blame the euro if you are a gold bug. The sinking euro is boosting demand for the US dollar. And the greenback and gold – and all other commodities – usually head in opposite directions.

Dollar strength?

You can question this as a long-term phenomenon if you like. ArabianMoney certainly thinks that US debts and deficits will come back to haunt the dollar in the near future. But for the moment the dollar is the least ugly sister at the dance.

Indeed as ArabianMoney has pointed out many times in the past as the US financial markets sink the US dollar is the automatic beneficiary. Anybody selling a dollar-denominated asset gets dollars in return and that boosts demand for dollars.

However, there are also those analysts who see a tipping point for the gold price when the euro hits a certain level with holders of euros choosing to buy gold in direct exchange for their money. We are very close to that level right now.

Hence precious metal owners are in a bit of a quandary. Do you dump gold because the price is falling or buy it because the euro looks close to falling off a cliff?

Presumably the IMF intervention in markets just over a week ago is going to keep on pumping sufficient dollars into the eurozone banking system to prevent this happening in the short-term but it is still a nervous time.

Good times roll

One thing you can be absolutely sure of is that gold and silver prices will bounce much higher in the near future. Maybe we need to see a real crisis in the eurozone first, possibly early next year, and a revisiting of the 2008 lows for financial markets.

But the upside in precious metals is unmissable because of the money printing to date – whose real inflationary effects have yet to come through – and the money printing to come from central banks.

The Fed has QE3 ready to fire and the ECB is widely expected to drop its opposition to money printing as soon as fiscal austerity measures are imposed. Then the price of gold and silver will surely head to the moon.

Posted on 13 December 2011 Categories: Bond Markets, Gold & Silver, US Dollar, US Stocks

7 Comments posted by readers:

Comment by Bill in Slidell - 14 December 2011

Former Goldman Sachs trader, and CNBC TV star, Jim Cramer, just said that NOW is the time to raise some CASH. He said he was going to DEFCON 2, from DEFCON 3, (DEFCON 1 being TOTAL euro meltdown) because some European banks are on the verge of having to be NATIONALIZED, and that fast (within 48 hours) action will be needed by the Europeans, or all hell might break loose. Jim is a very rich guy with his own charitable trust. He is connected to the Goldman movers and shakers. Does he know something that is not public knowledge yet, who knows? He was very concerned that the euro had fallen below 130 to the dollar for some reason.
I think gold will go down, if Europe melts down. I see it going down to $1,400 for a while, until the money printing is forced upon the EU. I DON’T think that the Europeans are foolish enough to let that happen, but stranger things have happened. I was reading something on my laptop and happened to look up at the TV to see gold at $1,666.66. I can remember laughing, thinking, ‘What is the chance of that happening?’ And I just saw 3 jets lined up in the sky coming in to land in Washington, live on the CNBC Kudlow Report. I have NEVER seen 3 before. They are getting their money’s worth out of that single runway! Investors fleeing the euro zone?
How about the British plan to build a super-giant airport east of London. It would have 4 parallel runways, and be built on fill. They will have to get Oil State money for that, or some communist cash. It might be a good investment, since the UK will probably have the largest population in Europe by 2050.
Some fellow on the radio out of Dallas, Sunday night, said that the price of new vehicles in the USA has actually fallen. Get ready for QE 3 next spring. That, and European crisis money printing might push the gold price up to nearly $2,000 by Christmas 2012. But right now, unless you are counting your oil well money, I would stay in the US dollar. Better safe than sorry.
Finally, check this out. You may have heard of the financial troubles of California, and be wondering how it could happen, with all those huge mansions that you can see from Google Earth all over the place, on the edge of every city. I just read a newspaper article about someone who retired from the California school system at age 59, after 40 years of employment. His position was not given. For the rest of his life, he will receive an annual pension of $179,000. Gee, I wonder why they are broke?

Comment by Jo - 14 December 2011

Gold will rise again. Look at the charts or learn how to read ‘em! Trending down at the moment but will rebound next year.

Comment by Bob - 14 December 2011

They will have to get Oil State money for that, or some communist cash. It might be a good investment, since the UK will probably have the largest population in Europe by 2050.

Comment by Bill in Slidell –

Why are you worried about 2050? A lot of us reading your comment would have passed away by then or we’ll be living in care homes with knarled bodies and dementia . The only thing we’ll want then is a meal or two and warmth when the weather gets cold.

Comment by Bill in Slidell - 15 December 2011

@ Bob
I’m not ‘worried’ about much, Bob. I just mentioned the potential new London airport because construction might start in a few years, which could make some construction company investors a lot of profit. It would be one of the largest construction projects ever. I doubt it will actually get approved because of the environmental impact, but you never know.

Comment by boatman - 15 December 2011

hard to pick a bone w/that peter.

in fact i would say—-exactly.

Comment by boatman - 15 December 2011

i will ad that TFmetalsreport.com called this slide last thursday based on the gold lease rate.

and jesse agrees: http://jessescrossroadscafe.blogspot.com/2011/12/interest-rate-for-lending-gold-in.html

this is ben and widdle timmy knocking down gold to prepare for QE3 in late feb or march

faber believes 9400 DOW will get that done…which is where we will be before germany lets the ECB print to save(temporarily) the piigs n the banks they owe.

Comment by obewon - 17 December 2011

@ Peter, the Ed.:
The title of your commentary is a question, beginning with the letter “WHY?” Your commentary mentions “dollar demand”, which is certainly the case, although the USD is indeed the least ugly of paper currencies, and isn’t the main factor associated with gold’s fall. You didn’t really answer your own question, nor provide the real basis as to why gold has dropped by so much.

@ Boatman, Who Answered the Question:
Thanks for providing the answer . . . albeit a partial one. The western banks have been extremely busy over the past two weeks as they’ve secretly been leasing gold while simultaneously directing their agents (i.e. the JPM/HSBC Gold Suppression Cartel) to short the gold futures price, and to short GLD & SLV, as well.

Isn’t it interesting how those Custodians of these ETFs (e.g. JPM for SLV, and HSBC for GLD), while holding a fiduciary to the ETFs investors, will habitually take actions that are not in the ETF investors’ best interests?

Delete the Word “Fiduciary” from the Dictionary:
I guess the word “fiduciary” has no meaning on Wall Street these days, nor at the CFTC. Although the CFTC’s motto is “Ensuring the Integrity of the Futures and Options Markets” (reference: http://cftc.gov/About/MissionResponsibilities/index.htm), these CFTC Commissioners go to “work”, but feel that they don’t have to do anything while there.

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