Gold back above $1,600 and heading to $1,900 due to Cyprus banking crisis says Jim SinclairPosted on 19 March 2013 with 5 comments from readers
Gold prices ran decisively past $1,600 an ounce yesterday, and this marks a breakout from recent disappointing range-bound performance by the yellow metal that will now head up to $1,900 before pausing for breath again in the opinion of one of the world’s legendary gold traders Jim Sinclair.
Mr. Sinclair actually predicted this breakout for gold a couple of weeks back before the Cyprus banking bail-in crisis erupted, saying that gold would bottom out on or before his birthday on March 27th and to trust him on this. If he has gotten this much right perhaps he knows what comes next.
Global stock markets reacted negatively to events in Cyprus where the government and European Union have agreed that up to 10 per cent of bank deposits will be confiscated as part of a rescue plan for the whole banking system. They seem to have underestimated the contagion.
It is not simply that nobody will want to hold money in Cyprus anymore. This action calls into question the absolute security of money held in any EU bank, and particularly countries also in financial trouble like Greece, Portugal, Spain and even Italy and France. Depositors will not leave their money where governments might help themselves.
Why will gold benefit? Well it is money that governments cannot devalue or steal directly. The gold price recently fell back in part because the world economy was asssumed to be recovering and that made risk-on assets like equities look more attractive. If the euro zone financial crisis is only half done then this is not the case.
German Chancellor Angela Merkel warned as much in her New Year statement but nobody took a blind bit of notice. Now we know to what she referred.
Cyprus is tiny with about 0.2 per cent of the GDP of the EU but its over-sized banking system is disproportionately large. Many large, quasi-state Russian companies channel all their export business through its banks. They are naturally furious at losing money from their Cypriot deposits. Mr. Sinclair reckons these deposits are very much larger than generally thought, and so will be the losses. That has implications.
His view is that the reaction will be a return to gold by Russia and further purchases by the Russian Central Bank where President Putin has just installed his right-hand woman in the top job. If so it is only a continuation of a vigorous gold buying program that is already in place. The Cyprus debacle will do nothing to reassure Russians that the Western banking system can be trusted with their money, and they are a major force these days.
Gold should indeed head back to $1,900 quite quickly and then surely we will see an assault on the previous $1,923 all-time high and finally $2,000 will be taken out.