Gold News

Climate changes for gold

Think back to July. Now look at today...

A snippet from the latest issue of

to two months ago. Now think back to today. There have been some big changes in confidence levels, not only in global growth, but in the financial structures of the entire world.

   Lots of reassuring words are flying around, but few are convinced that all is well. This would not matter so much, but some of the statements of concern have come from the leading figures in the globe's main financial institutions.

Dr.Ben Benanke has warned that the US trade deficit is unsustainable; he also warned of a potential drop in foreign appetite for US Treasury bonds. These warnings did not come with solutions, but were simply warnings.

The Organization for Economic Co-Operation & Development (OECD) has warned that the financial-market turmoil may reduce global growth. The OECD's chief economist says the credit markets have serious imperfections, and he's called for more supervision of the US mortgage market.

So in summary, the current global situations facing central banks are as follows:

"The major central banks generally face an economic outlook characterized by scant spare capacity and unemployment rates close to or below their structural levels, as well as high energy prices and rapidly rising food prices. Outside Japan, inflation rates – despite recent easing in some cases – are still at the high end of what is consistent with price stability. At the same time, they are confronting risks to financial stability, which have prompted them to step in with large and [hopefully] temporary injections of liquidity.

"Consequently, central banks may have little choice but to cut interest rates to safeguard financial market stability, including the Fed."

But it is going to take far more than a rate cut to resolve the problems of the global financial system. Who can resolve these problems, and who has the will to solve them? Nobody it seems.

Other warnings have come from the International Monetary Fund, from European bankers, and no doubt we will hear many more warnings as emerging nations expand to stretch an already overstretched global financial as well as resource capacity to accommodate their growth on top of the current problems in the banking system.

With confidence already buckling world wide we have to ask ourselves, are we listening? More importantly, are those in a position to correct the situation, listening?

Gold is certainly listening, as are gold investors. They will listen still more as they protect themselves against the future as well as against today's concerns.

More and more people will become gold investors. The Spot Price of Gold today isn't being driven by the simple demand and supply formulae of the typical commodity markets. It's being driven by concerns over the present and future state of the global financial and monetary system.

The Gold Price will rise in direct proportion to further drops in confidence, the growth of uncertainty and the growing need for a sound financial and monetary system that can accommodate the sudden emergence of nearly half of the globe's population as consumers and capitalist producers.

Gold is being elevated to the status of a sound investment in these extreme times, which it always was before 1980.

How do we get a true sense of proportion in such a climate? Platitudes, reassurances, the "so far, so good" attitude...all these tend to pull us away from sound judgment. So we have to choose to protect ourselves as best we can, alone.

The first question we try to ask is "When will these warnings mature?" How can one put a time scale on oncoming disasters? Well, you can't – so you have to prepare well in advance. Be certain of one thing. When the true problems come into view, you will be part of the madding crowd if you haven't already taken steps to defend yourself.

Take a look at the US Dollar Index, an issue that Peter Spina of the has highlighted for so long now, pointing to the technicals sitting below the critical support level at 80. There, Peter states:

"I keep returning to the long-term US Dollar Chart to stress the significance of the 80-area support. Long-term support is very significant around 78-80, which we expect to see retested once the 82 area supports fall. A bounce is expected but we believe in an eventual breakdown of the massive 80 (78-80) supports."

We are currently at 79.456 on this index and support is in the process of being battered. This has a deep significance for our future that goes beyond the US Dollar alone.

It is now clear that below this level of 80 on the US Dollar Index, we could see a fracturing of confidence in the world's reserve currency. A breach of such support will herald not only a fall in the exchange rate value of the Dollar, but it will spawn of a whole host of consequential tensions and crises related to the United States, the global monetary system, and the global political arena.

The sub-prime housing crisis will pale into insignificance against these approaching dramas.

As we have seen for some time now, such weight rests on the Dollar that the major holders of surplus Dollars – the major traders in the Dollar and its banking dealers – all want the Dollar to hold up and will do all in their power to support it.

But it seems inevitable that the weight of downward pressure on the Dollar will prove overwhelming. It is only a matter of time before it falls. Don't expect for a moment that the Dollar is going to fully collapse, though. It will continue to be the globe's most important currency, because it's needed and is the only option around right now. Any replacement will have to grow into that role, not be thrust there overnight.

Having said that, such a breach of support on the Dollar Index will bring about a sea-change in all markets around the globe, making the traditional risks that have been associated with gold seem minor. Gold is already starting to appear as an investment stabilizer and a contra investment to other investments. Over time from now on, will find growing recognition as such. This will take the Gold Price to a new level.

Overall, central bankers have recognized that the globe faces a serious problem which will not fade away. It threatens both growth and stability. Unless solid action is taken soon – both to prevent further loss of confidence and to restore past levels of confidence – the global economy could take a dip alongside further destabilizing of US and global financial markets, including global foreign exchanges.

Individuals and institutions will increase their gold holdings and central banks will become hesitant to sell any more gold.

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JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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