Gold Hits 4 Figures in Main Currencies – Britain Sees Signs Austerity Will Pay
Gold hit four figures in Dollars, Pounds and Euros this week, for the first time ever, as crisis contagion fears, this time over Italy and Spain, stalked markets worldwide, and poor US economic data piled in on top of Eurozone woes.
It looks as if it might all be starting to come unravelled. The profligate spending of Europe and America might now be really coming home roost. Stock markets are getting hit hard.
Recent events have hit both the Dollar and Euro hard, but Britain on the other hand, seems to have emerged as something of an unlikely safe haven. The yields on British treasury bonds have reportedly touched the lowest since 1946 this week. This could be interpreted as a clear vote of confidence by markets in Britain’s course, at least in comparison to the rest of Europe. And while Britain has turned in lacklustre economic numbers this week, they have not been terrible, and that seems to be all it takes these days to attain safe haven status.
But too much of a good thing is seldom all good, and this week, the Swiss National Bank cut interest rates, and threatened direct intervention in an effort to stem the flight to the Swiss Franc. Japanese policy makers have also been trying to contain the rise of the yen, in an effort to keep their exports competitive. All of this would seem to point to low interest rates in solid economies as they try to protect their exports, and low interest rates in economies that are debt basket cases as they try to grow their way out of trouble. It is increasingly difficult to see, in such an environment where the headwinds for precious metal prices might come from. This also adds up to something else that is historically good for Gold. Inflation.
Anticipation of a new round of quantitative easing (QE3), in response to poor US GDP data, also look likely to be supportive of hard assets including Gold and Silver. If QE3 comes to pass, (though policy makers are likely to do everything they can to avoid calling it QE), it could be the impetus required to kick Gold and Silver bullion prices higher still.
In fact, predicting the top in Gold prices seems to have become an increasingly incredulous endeavour, particularly for those who remember buying 1 ounce Krugerrands for 300 pounds each in the not too distant past. The very same Gold bullion coins today sell at well over 1,000 pounds. But with events unfolding on both sides of the Atlantic as they are, it is becoming ever more difficult to see where prices could stop.
It seems that Gold, and Silver have now established themselves even more firmly as safe havens. As I write on the morning of 5 August 2011, Stock markets are tanking on sovereign debt fears and Gold and Silver are about the only asset classes that are up.