Gold News

Why Has the Gold Price Jumped?

Only the gold price is now truly capable of measuring currency weakness...

IN RECENT weeks the Gold Price has jumped from $1,555 per ounce, to reach just over $1,800, writes Julian Phillips of

Many have blamed the unfortunate ratings agency Standard & Poor's for the market dramas in the last two weeks, but they were simply the boy who said 'the emperor has no clothes on.' 

For months now, we have known and commented on the fact that the debt crises on both sides of the Atlantic would lead to trouble. One hopes that the news is not as bad as it seems, but we all knew it was. The build-up of parallel crises added weight to the drama so when the Dow suddenly sank it was simply a postponed reaction. The fact that a 'head-and-shoulders' had completed its formation made the market ripe for fall. 

Everybody reacted all over the world as this postponed reality was publicly accepted. The oil price fell to below $80, the Dollar and the Euro fell like a stone, the Swiss Franc and the Yen soared to economy-destructive levels and eventually the Fed confirmed that the US economy should see no growth for another two years. The Chinese government called for a new global reserve currency to replace the Dollar. 

All in all, the global economic scene experienced a gear-shift, down to a darker investment climate…

The$1,555 Gold Price had already signaled that it was going to take off in June, but the S&P trigger sent it soaring effortlessly to $1,800. Only now are these new realities being properly absorbed, although slowly...


We see the S&P downgrade as a judgment on the Congressional inability to properly assess the dire nature of the US credit situation because of their fixation on party politics. It is the first time that the US Congress has had to see the rest of the world react to the declining US global economic dominance. It had to happen for the US Congress to understand that the US is responsible for its behavior and will face consequences if it does not adjust. It's a change that has not happened for 40 years.

We do not see a change in the political behavior of Congress until more consequences force that change. There may be considerable economic pain before this happens, and the future brightens for the US During this time the US has to see that it is no longer the world's economic axis, allowed to extract advantage from the rest of the world through its 'exorbitant privilege' of printing money to pull itself out of economic decline. As we forecast at the beginning of this year, 2011 would be a year of consequences!

As we move towards QE3, more Dollar printing and the consequential inflation, we fully expect the Dollar to weaken much faster. QE3 will confirm that they have chosen inflation as a way out of a double-dip recession or deflation. The interdependence of currencies will prevent exchange rates from highlighting any currency's weakness. We have seen this last week in the actions of Japan and Switzerland to weaken their safe-haven currencies. History will record that the announcement by S&P was simply a trigger for a new era of currency instability and the loss of currency values. 

Only the Gold Price is now truly capable of measuring the weakness of currencies. The jump in the Gold Price over the last decade has been screaming this to all, but few outside of gold were listening. The leap since June of $250 reflected the acceleration in the speed of declining values.

It is natural for us to assume that the global monetary authorities will agree to a reformation of the monetary system that effectively addresses the mess it is in right now. Certainly we expect the mess to worsen considerably before this is accepted. 

After that, who will be responsible for putting it right?

What obstacles will they face?

  • Politicians will have to please those who put them in power and cannot act independently of this power base, no matter how necessary a departure may be. It would be political suicide to do anything else –a consequence of democracy.
  • Politicians or Monetary Officials likewise will have to ensure they act in the interests of their nation even if it goes against the greater good of the international community.
  • The international pecking order will weigh in to give priority to measures put forward by the most powerful. The battle will likely impact the voting rights in the International Monetary Fund where the 16.83% of the US – the IMF needs an 85% vote to pass any measure — will come under fire and China will be given a share of the voting commensurate with its growing economic power.
  • All of the above has to be decided before China's request for a new global reserve currency can even be contemplated.
  • A new global reserve currency would require either the diminishing of the Dollar's role in the global economy or its removal as its sole reserve currency.

The obstacles will prevent the much-needed structural monetary reform. Are the current powers-that-be impartial enough or be franchised to formulate a globally reformed effective monetary system? Not yet, if we look back at the efforts of the US Congress to cut their budget deficit.

What is next? History shows that willing change, when not forthcoming gives way to unwilling change! Unwilling change climbs out of wars or rupturing, destructive, crises that remove the above barriers and which license the powers-that-be to undertake needed, sweeping reforms.

Buying Gold? Make it safer, cheaper and easier with BullionVault...

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.

See full archive of Julian Phillips.

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.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals