"Gold is breathing new air at nearly $1,340 at London's open, with Asian demand holding prices up overnight. With Gold the Thermometer of the state of the global monetary system, the infection is becoming contagious!"
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Gold – Very Short-term
With the €:$ exchange rate barely changed on the day, gold is at new highs [ever] at $1,238 and Silver attacking $20 at $19.50. This is new territory, with no resistance in sight. We have to look at the extent of the monetary crisis across the world to gauge just how high gold will go?
Demand is global now but far from fever pitch. COMEX is seeing heavy demand, alongside the SPDR gold E.T.F. with London seeing heavy physical demand. This tells us that demand is very broad based. The weight of buying is investment demand not the traditional buyers.
With Asia and London setting the pace, we believe the U.S. may experience the 'shunt' effect and follow suit today.
[Among the subjects in the gold and silver markets we are looking at in our Gold Forecaster newsletter, are; "Gold – A Means of Exchange? – A Measure of Value?" And "Does defending a currency or a government bond really work?"
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Gold Price Drivers
The markets continue to express lack of confidence in the E.U. / I.M.F. rescue plan. A look across the Atlantic at the T.A.R.P. program, which triggered Quantitative Easing [money printing!] shows how more was needed than the original plan. But Greece is not a bank that can increase cash flow from other directions. It is an inflexible economy that is unlikely to do so. Is it wise to lend so much to countries that may take a decade or far more, to repay? There is a direct conflict between generating growth in a poor economy and policies that will rectify excessive over-borrowing among banks. Greece is going to be a very poor country with high unemployment for a decade and more, if they do what's necessary to rectify matters. What of other nations who are heavily over-borrowed? We hear Spain has embarked on heavy cuts too.
The heart sinks at the inability of policymakers to rectify matters, with moves that may cost them their careers and their countries economic hardship? This is a conflict of interests, if ever there was one. In view of this, President Obama is actively engaged in trying to stop the European financial crisis from hurting the U.S. or global economic recovery. This alone tells us that contagion may cross the Atlantic, despite it being "too big to fail"? This is all very 'gold-positive'.
A sign of this is the quiet lift in U.S. Treasury yields. It may be that foreign investors are being deterred to some extent despite their need for the liquid income earning Treasuries on a continuous basis? The yield US 10-year Government Security has increased from 3.39% on 6 May to 3.5% on May and remained at that level on 11 May. Watch this space!
Julian D.W. Phillips – www.GoldForecaster.com