Gold reached new record nominal highs in the dollar, euro and pound yesterday and remains close to these record highs today.
Gold’s slight fall yesterday (in dollars) was primarily due to margin calls in futures markets and profit taking.
Leveraged players in the futures market, such as banks and hedge funds, seeing massive losses on stock and commodity positions likely placed stop loss orders below the record highs yesterday which may have contributed to the slight dip.
Given the scale of losses incurred in yesterday’s ‘bloodbath’, margin calls will have forced many to close their long gold positions.
Some profit taking may also have taken place as gold has hit a succession of new record highs in recent days.
Also, gold is 17% higher year to date while most stock markets are in negative territory (the S&P is down 4.6% and the FTSE is down 9.2%) and some market participants may have decided to book profits.
Gold is nearly 2% higher in dollar terms for the week. It is 3.6%, 2.8%, 3.9%, 0.43%, 4.45% and 6.6% higher against the euro, pound, Japanese yen (see Gold Surges 3.8% in Japanese Yen as Global Currency Wars Resume), Swiss franc, Canadian and Australian dollar.
Thus in one of the most volatile weeks since the outset of the financial crisis, gold has risen in all currencies including the so called safe haven currencies. It has risen despite already healthy gains in 2011.
In dollar terms, gold may fall today as traders on Wall Street may be subject to further margin calls and may decide to take profits.
In the world’s financial market almanacs, this one will stand out as a time when governments and central banks became increasingly irrelevant.
It may be remembered as the time that gold reasserted itself as the ultimate safe haven asset and currency rather than the ‘volatile commodity.’
This week, financial markets looked on aghast as European leaders and their comfortably pensioned staffers made limp assurance after limp assurance.
The Italian and other European leaders incredulously blamed the market for pushing up their governments yields. Those of a wiser ilk immediately identified the rhetoric as delusional and another example of history repeating itself.
Similar misguided rhetoric was seen recently in Ireland, Greece, Portugal, France and other countries.
It is illustrative to look at the world of medicine.
If a doctor over prescribes the same medicine for a condition again and again, a resistance will develop to the medicine and soon the condition will persist unabated and worsen.
Quite simply the patient – the capital markets and global financial system – has been over medicated with too much debt.
Real economies are now taking their q from government and central bank policies and not the demand side economics of a free market.
We are in dangerous waters indeed.
Angela is on holidays by the way. Guten grief!
The market and the power of the market is exerting itself and all the paper games and manipulations by the powers that be is being seen as increasingly futile.
Indeed, there is now a realisation that the multitude of “coordinated actions” by the “masters of the universe” have been mere short term panaceas which have done nothing to address the root cause of the crisis.
These are massive debt levels in the U.S. and most of the western world and massive debt levels in the global financial system.
Giving “bailout” loans and creating more debt and piling this debt upon existing debt is no solution.
As we have long warned, ultimately it will create contagion in bond, currency and all markets and to the insolvency of millions of taxpayers and further economic decline.
The primary solution is a massive write down of debt and a downsizing and deleveraging of balance sheets internationally and the global financial system.
The will ameliorate the situation and potentially will protect us from a serious global Depression.
The coming weeks, months and years will be challenging especially for those who have not yet realised the diversification benefits and importance of owning gold.