The Euro has become a very odd, very toxic asset...
WHAT'S UP with the Gold Price? asks Adrian Ash at BullionVault. Very little besides Facebook. Gold is down, in fact. So is everything else bar the US Dollar and "safe" sovereign debt.
"I think what we can expect is a rate cut from the ECB [European Central Bank]," said Joachim Fels, chief economist at Morgan Stanley, to Bloomberg TV Wednesday morning. "I think they will cut soon, as early as the June meeting...
"But unfortunately, a rate-cut alone doesn't do the trick."
The trick, of course, is holding the Eurozone together by destroying the Euro. Or at least decimating its value. You might expect that to boost the Gold Price, and everything else. But very little makes sense in finance right now.
"The least disruptive route Europe can take is to sharply lower the value of the Euro," says finance academic Jeremy Siegel in the Financial Times. "If devaluation is a code word to mean raising the inflation target, fine," says Princeton professor Paul Krugman. Our friends at Standard Bank just cut their end-2012 forecast for the single currency from $1.20, but only down to $1.15.
Because even with El Tro Part 3 or QE the First, the Esperanto is unlikely to tumble.
How come? Now down less than 7% from its February high, the Euro is making for a very odd and very toxic asset, corrupting everything but itself. Because when they got German interest rates and a global market for their government debt, half of its sovereign members went nuts spending and borrowing. But Germany itself pushed on with boring hard work, wage restraint, and world domination in high-spec machinery and engineering. The internal imbalance seems to demand a fiscal transfer – of German savings to settle Club Med's bills.
At tonight's "informal" summit, however – as at every summit to date – Chancellor Merkel is set to say "Nein!" yet again. Why would Germany want to join Eurozone joint bond issues? It's already gifted its credit rating to Mediterranean debt, and look where that got us. Besides, Merkel can after all borrow money at 0% rates, or near as dammit. Why doesn't the rest of Europe understand the model?
This week's fresh impasse would surely send the Euro lower again, if only Germany weren't the Eurozone's biggest economy. So instead, the stress cracks run into everything else that isn't the Dollar (or 'safe' sovereign debt). Including – bizarrely – the ultimate default-or-devaluation protection of physical Gold Bullion.
Western portfolio managers are now holding more cash than any time since Jan's 8-year record, says Reuters. New York's giant $64bn SPDR Gold ETF shed 17.5 tonnes on Tues, the largest 1-day redemption since August. The Indian Rupee is hitting fresh record lows vs. the Dollar, worsening the outlook for the world's #1 jewelry buyers. Hong Kong premiums over London spot prices are firm around $1 to $1.50 per ounce, but trading volume is slipping in Shanghai.
In a credit deflation – which this is – and after being buoyed by the global liquidity surge of the last decade, gold and silver should be expected to hit turbulence at the least. That's even before you account for the sudden resurgence of the all-Apple, Facebook-toting, shale-gas-laden US Dollar. If resurgence you can call it.
On its trade-weighted index the Dollar has reclaimed only an 18-month high, and has barely dented its 35% drop of the past decade. Just imagine what trouble it's got in store for us all – US exporters and consumers, as well as investors and debtors worldwide – if the thing really does start to push higher.
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