Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Price Strong in All Currencies -Chocolate Bunnies & the Easter Heatwave

Commodities / Gold & Silver Mar 03, 2008 - 01:57 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"...Those who oppose reform may get revolution..." - John F. Kennedy, speaking of Latin America in 1962

THE EURO HIT fresh all-time highs versus the Dollar already this month – and we're only one trading day in.


So might US investors want to switch out of gold bullion ahead of Easter this year and move into the single currency instead?

After all, the Euro still pays 4.0% interest per year – a feat that dumb gold could never promise or achieve – and with Eurozone inflation holding at a record 3.2% year-on-year in February, the European Central Bank (ECB) is clearly in no mood to start slashing rates now.

"Inflation will not slow as markedly as supposed," warned the ECB's Axel Weber last week. Colleague Juergen Stark added that he was "highly dissatisfied" with the current surge in the cost of living.

Tight money to come then, right? Well, the Gold Market doesn't buy it. Not at $1.52 to the Dollar – with European manufacturing squeaking and Mediterranean house prices slipping.

The Gold Price for French, German and Italian savers just keeps on rising, gaining for six of the last seven months.

And yet luxury car-maker BMW says it can't bear a further "sustained rise" in the Euro above $1.50 to the Dollar. Last week it cut 5,600 jobs.

Dassault Aviation in France says it can't compete at this kind of exchange-rate either. "The natural step is to shift to the Dollar zone [incl. most of Asia , remember] or low-cost areas as they have done in the car industry," said CEO and chairman Charles Edelstenne to Le Monde last week.

"This could include parts of our factory plant and some research tasks."

Put another way, Europe has got the worst of both worlds right now – a high-value currency that's crimping exports, and yet surging inflation at the very same time. So the European Central Bank needs to talk tough while doing nothing, hoping the inflationary and currency pressures don't squash the economy both at once.

Good job the old economies retain such political importance as well. Right?

"To have an increase in the [voting] quotas of emerging countries – China, India, Brazil – is very difficult because the sum has to add up to 100%," noted Dominique Strauss-Kahn, head of the International Monetary Fund (IMF) in late February, "so some others must lose.

"The ones who are going to lose are mainly the European countries and that is the reason why they may be reluctant [to vote for change]."

The debate goes far beyond the IMF, however, that brave remnant of post-war global planning. All top-level political groupings now face the problem of too many powers, with too much at stake, all wanting to be members of the top few spots in the "oh-so-crucial" club.

The G-7 group of industrialized nations, for instance, currently invites three Eurozone nations to the party – Germany , France and Italy – as well as Canada , Japan and the United States .

The United Kingdom gets to tag along too, not least because it's still vying with China for the No.4 slot in world GDP behind the US, Japan and Germany. It also prints the world's No.3 reserve currency, the British Pound. And my, but how it prints it!

Growing by 12.9% in January from a year earlier, the broad supply of Pounds Sterling has now been expanding at a two-decade record since March 2005.

No wonder the Gold Price in British Pounds is surging alongside the UK 's trade & government deficits. But "when are we gonna get the real players, with the money, in the middle of these [G-7] debates?" asks Jack Welch, former head of General Electric. He was talking to Larry Summers, US Treasury secretary at the tail-end of the last Clinton presidency, on CNBC last week.

"It seems like some of our government institutions are living the last war, for example the G-7. Four European economies, Canada , Japan and you guys [the US Treasury] all meet...but the money's somewhere else."

"Oh, you know how these things go, Jack," replied Summers, former president of Harvard University and now a part-time hedge fund consultant in New York . "It's much easier to get people in than it is to get other people out...

"You want to have a reasonably small group. We worked with the Canadians to set up the G-20 for exactly the reasons you give. And I think [US Treasury] secretary Paulson is to be commended for the effort he has put into having a regular financial dialogue with China on a bilateral basis.

"I think you're gonna see this kind of evolution. Look, if we wanna address this issue of sovereign wealth funds – which I think is a concern, though it's a concern that has to be kept in perspective – the way we're gonna do it is by having dialogue with the countries that, just as you say, the countries that have the money. Some of them are China , some of them are in the Middle East , and I think we do need to recognize more than we probably have before that the distribution of financial power and influence and capacity is pretty different from the distribution of sort of political congeniality with US interests across the board.

"That means we may need to have a somewhat different grouping for the foreign ministers and the finance ministers."

Can political and financial power really be split into two different groups...with the United States at the head of both, choosing its allies here but inviting a different clique of friends there?

Perhaps with Europe gnashing its teeth about the high Euro, it's actually time for the Dollar itself to bounce, rallying from new all-time record lows on its trade-weighted index and forcing US Gold Prices lower.

Sure – it might require higher interest rates from the Federal Reserve, rather than the campaign of monetary destruction begun by Ben Bernanke back in August. Or conversely, those new record lows in the world value of the US Dollar might help stoke US export sales so fast, it revives the major Wall Street stock indices and erases the last five months of losses.

No...?

Should the Dollar and Wall Street's collapse continue, meantime, some kind of new monetary world order will only continue to look ever more likely. Russia is preparing to price and sell crude oil in Roubles, for example, rather than the Dollar. The Rouble might also be used as one means of payment on a forthcoming Iranian oil exchange in Tehran , according to Iran 's ambassador to Moscow last month.

But whatever comes, and no matter what happens to the price of Gold , don't expect the chocolate bunnies of today's monetary order to vote for either Easter or a heatwave...let alone both at the same time.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in