November 17, 2011
By Greg Hunter
At the beginning of this month, the G20 met in France to try to find a way to solve the European sovereign debt crisis. It ended with world leaders in disarray over a way to come up with a solution. At first blush, it appears that nothing of any importance came of the meeting of the 20 leading economies of the world, but that is not the case. It was widely reported the G20 came up with the idea that Germany might put up its gold reserves to back a bailout fund called the European Financial Stability Facility or EFSF. Of course, Germany, with its more than 3,400 tonnes of gold (number 2 in the world), quickly shot that idea down. End of story? Quite the contrary–the gold story is just beginning to get interesting.
You see, the G20 did something accidentally that was very important, and that was confirm that gold has a place in the monetary system, especially in times of extreme turmoil. Why doesn’t the EU use sovereign bonds to back the EFSF? They are considered a store of value and are held as reserves in many European banks. The simple answer is the world is waking up to the fact that debt can’t back up debt. Europe finds itself in a tough spot, and the leaders there know it. Reuters reported Monday, German Chancellor Angela Merkel said, “Europe is in one of its toughest, perhaps the toughest hour since World War Two,” she told her Christian Democrats, saying she feared Europe would fail if the euro failed and vowing to do anything to stop this from happening.” (Click here for the complete Reuters story.) Well, anything but put Germany’s gold up as collateral. Maybe Chancellor Merkel will be the next leader to exit the European stage? Who knows, but what I do know is that gold is once again going to become an important part of the world monetary system.
In a new book called “Currency Wars,” Wall Street insider Jim Rickards examines how countries try to get out of financial trouble by devaluing their currencies. Rickards says, “Today, as yesterday, countries are attempting to devalue their way out of trouble. Following the strategy of beggar-thy- neighbor, the U.S., Europe, China and Japan all want to weaken their currencies. The flaw in the tactic should be clear. “Not everyone could cheapen at once,” Rickards writes. “The circle still could not be squared.” (Click here to read a book review by Bloomberg.) Rickards predicts the U.S. dollar’s future is not bright, and if there were a “catastrophic collapse of investor confidence,” the dollar’s buying power could suffer suddenly and dramatically in a global sell off.
Gold would be the big beneficiary if the dollar declined, and Rickards’ top price for gold per ounce is–wait for it–$44,552! That price is the absolute highest possibility. Rickards and others predict that in the next few years, America will go back on some sort of gold standard. Meaning, the dollar will be backed by gold, but Rickards has stated on many occasions that there probably will not be a100% gold backed U.S. dollar. Instead, Rickards contends it will be more in the neighborhood of 40%. If that is the case, then gold would be $17,821 per ounce using Rickards numbers. It appears gold prices are going much higher.
November 10, 2011
By Catarina Saraiva and John Detrixhe
Standard & Poor’s roiled global equity, bond, currency and commodity markets when it sent and then corrected an erroneous message to subscribers suggesting France’s top credit rating had been downgraded.
The benchmark Stoxx Europe 600 Index extended its decline to 1.5 percent to 234.11 and French 10-year bond yields surged as much as 28 basis points to 3.48 percent, the highest level since July. The euro pared gains and U.S. equities briefly dropped after the mistaken announcement. Commodities erased gains before resuming increases after S&P affirmed France’s AAA rating in a later statement.
“It clearly raises issues about internal systems and controls,” said Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based bank- rating firm. “The onus is on them to be careful and it’s troubling. Whether you’re a broker dealer or a rating agency, everything you say has to be very carefully considered because of the weight that they carry.”
A downgrade of France’s credit rating would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations.
S&P’s erroneous message was put out at 3:57 p.m. Paris time. The company sent a release at 5:40 p.m. Paris time saying the message was incorrect and affirming France’s rating.