By Ryan McGuire for Gold Avalanche
I wrote this article on May 22nd, but didn't publish it because I really wasn't sure about whether my methods and analysis were correct. After some more research, I've decided to go to press with it.
Look at what is happening around the world - there is near certainty that Greece will have to exit the Euro currency system, Spain, Italy and France find themselves in ubiquitous positions with debt and anti-austerity government sentiments, China and the US are engaging in some stealthy currency battles (china is dumping us treasuries and allowing their currency to slowly appreciate against the dollar), The US is seeing negative real interest rates (as well as most of the West), and emerging economies seem to be experiencing a temporary pause in growth.
The conference board of Canada, in it's recent commentary on the Eurozone, had this to say: "If the eurozone is to stay intact, many of its members have little choice but to keep cutting domestic wages and benefits and find ways to boost productivity ... [a Greek exit from the Euro Zone] is the most likely option in our view, and its probability is rising."
If the above three paragraphs don't provide you with enough reasons to own gold, then there may never be enough reasons aside from a mania. The world's economic powers have gotten themselves into a terrible position - JP Morgan's 3+ billion dollar loss on some bad (and frankly, stupid) hedges is a testimony to the level of leveraging the banking system is allowed to get away with. Remember, for every 1 dollar you put into the bank, the bank can leverage it out to up to $9 in real estate, market bets and hedges of various kinds. This is 'fractional reserve banking' in the broadest, simplest sense.
Back to gold, lets take a look at the Gold/S&P500 relationship. It is plain to see that bad news for the economy is very good news for Gold. Given the above situations, I expect that the bad news will eventually eclipse the good news (or any sense of good news) in the markets. It may not happen yet, as evidenced by the Dow/Transportation relationship, but there is an ominous something out there - and when it rears its head, we want to be more than ready to short the broad market and/or take our last exit and wait on the sidelines for the dust to settle.
On a more tangible level, when Greece finally is forced out of the Euro currency, or is forced into continued austerity and thus depression, things will likely get very hairy very quickly.
I wrote this article on May 22nd, but didn't publish it because I really wasn't sure about whether my methods and analysis were correct. After some more research, I've decided to go to press with it.
Look at what is happening around the world - there is near certainty that Greece will have to exit the Euro currency system, Spain, Italy and France find themselves in ubiquitous positions with debt and anti-austerity government sentiments, China and the US are engaging in some stealthy currency battles (china is dumping us treasuries and allowing their currency to slowly appreciate against the dollar), The US is seeing negative real interest rates (as well as most of the West), and emerging economies seem to be experiencing a temporary pause in growth.
The conference board of Canada, in it's recent commentary on the Eurozone, had this to say: "If the eurozone is to stay intact, many of its members have little choice but to keep cutting domestic wages and benefits and find ways to boost productivity ... [a Greek exit from the Euro Zone] is the most likely option in our view, and its probability is rising."
If the above three paragraphs don't provide you with enough reasons to own gold, then there may never be enough reasons aside from a mania. The world's economic powers have gotten themselves into a terrible position - JP Morgan's 3+ billion dollar loss on some bad (and frankly, stupid) hedges is a testimony to the level of leveraging the banking system is allowed to get away with. Remember, for every 1 dollar you put into the bank, the bank can leverage it out to up to $9 in real estate, market bets and hedges of various kinds. This is 'fractional reserve banking' in the broadest, simplest sense.
Back to gold, lets take a look at the Gold/S&P500 relationship. It is plain to see that bad news for the economy is very good news for Gold. Given the above situations, I expect that the bad news will eventually eclipse the good news (or any sense of good news) in the markets. It may not happen yet, as evidenced by the Dow/Transportation relationship, but there is an ominous something out there - and when it rears its head, we want to be more than ready to short the broad market and/or take our last exit and wait on the sidelines for the dust to settle.
On a more tangible level, when Greece finally is forced out of the Euro currency, or is forced into continued austerity and thus depression, things will likely get very hairy very quickly.
(Click on the image to enlarge)
