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$125bn Spanish bank bailout sets gold up for $2,000 and silver $60 this autumn

Posted on 10 June 2012 with 2 comments from readers

Eurozone finance ministers panicked this weekend and agreed to a preemptive announcement of a $125 billion bailout for the Spanish banks, bringing the grand total for bank bailouts to $600 billion when Ireland, Portugal and Greece are added.

Money printing on this scale has only ever been good for precious metal prices by historical precedent. The bank bailouts are an example of money creation at the source with banks able to lend more against this new capital injection and sterilising bad debts.

Precious metal prices

It sets gold up to power above the $1,923 all-time high of last September and hit $2,000 an ounce this fall, while silver will as usual outperform to the upside and cross the 1980 all-time high of $50 and go to $60. This is only what we heard in the Dubai Old Souk earlier this year (click here).

Of course the eurozone politicians have been panicked by the upcoming Greek election on June 17th to do something now rather than wait for the contagion to hit Spain. It remains to be seen whether preempting market fears has actually put them ahead of the curve.

Nobody really knows the likely course of events after the Greek election. Watching the TV programs with politicians lashing out at each other smacks more of anarchy than a stable democracy. But many have begun to question the praticalilty of leaving the euro.

The single currency was not designed for countries to come and go. Liquid assets in euros have already fled Greece but going back to an independent currency would still mean huge losses for the rich, although it would also create a buying opportunity.

Perhaps then the eurozone will bite the bullet and accept even bigger losses on Greek debt, and create money to save its banking system as an alternative. The sudden cave in over Spain at the weekend certaintly suggests that is the way the wind is blowing.

Monetary inflation

More and more paper money in the system, more and more sovereign debt, it can only end badly and most certainly with much higher inflation levels. Inflation in China jumped last month as the world’s third largest economic bloc slowed down.

Investors who want to beat inflation are left with fewer and fewer options. Central banks cannot print gold, they can only buy it themselves as an inflation hedge and help to push up the price. Silver is a tiny market that will follow and outperform gold as a sister monetary metal.

There are few win-win scenarios for global investors in these markets, expect more and more investors to jump on this train. That is why prices are going higher.

Posted on 10 June 2012 Categories: Banking & Finance, Bond Markets, Global Economics, Gold & Silver, Investment Gurus, US Dollar, US Stocks

2 Comments posted by readers:

Comment by Bill on Clearwood - 11 June 2012

You gold bugs will like the article by Jim Jubak at entitled, ‘Tear Up Your Paper Money’. I liked the history in it.
At least the bank bailout will boost the stock market for a while.
David Stockman painted a bleak picture for the US economy next year Sunday on TV.

Comment by Stephanie - 13 June 2012

Not going to happen this year… Unless the collapse can REALLY, REALLY get under way. This means that Greece, Spain, Italy, and other countries revert back to their national currencies. I just don’t see silver/gold going up this year, and I consider the Euroland crash an outlier event in the “cause” of gold/silver’s rise. The previous article that this current article refers to has been proven to nought, as silver is still in the upper 20s and will stay below $50 until next April, otherwise.

Just don’t forget that you might see gold/silver hit hard in the collapse, but then take off on their own after a while. I wouldn’t be surprised to see silver get taken down to $18-24 if the collapse happens. I have no idea what will happen or how it will happen, because it will be a free-for-all, a mad dash for power in the vacuum of the US Dollar.

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