By James West
March 24, 2011
I don’t know how likely it is, but shouldn’t the gold price naysayers and gold bubble theorists all stand up on their chairs and jump off right about now?
There are so many factors pointing to not just an increasing gold (and silver) price, but an absolute breakout seems all but inevitable at this point. Judging by the solid return to strength in the junior resource sector on the buy side, it appears that not only gold, but silver too, are poised to set new records in the sessions immediately ahead.
The big surprise is that they haven’t already performed ten times more strongly than they have.
The middle east is undergoing a transformation that has got Israel, the United States and Saudi Arabia on tenterhooks. There’s a very real fear that the grass roots protests that started in Tunisia and Egypt and have now spread to Libya, Yemen, and Bahrain could have an inspirational effect on insurgents in other Mid East countries, especially Saudi Arabia.
In a worst case scenario, fundamentalist Islamists could theoretically unite amid the chaos and begin to work in a concerted effort to attack Western and Israeli interests, and complete upset the balance of power in the region that has permitted Israel to exist and allow for the American exploitation of hydrocarbon resources for the last 70 years.
Furthermore, China has seen an escalation in social media-borne agitation for a “Jasmine Revolution”, which is a call to dissidents to join forces in popular protests in major urban centers throughout China. China has had to block access to popular websites where such messaging has surfaced, and the police presence throughout the country has been beefed up and there is a coincident sense of raised tensions, according to some residents.
All of which promotes a sense of global instability, which has always been one of the fundamental reasons to own gold.
There are other geopolitical risks that are also helping to point to much higher prices in gold and silver.
Portugal’s government is on the brink of collapse. If the country’s parliament votes to reject the government’s IMF-mandated austerity measures, the minority Socialist controlling party could be hoofed out, opening the door for a complete Iceland-style collapse.
And Portugal is not alone. Ireland too, is so close to a complete default that local economic commentators see it as a ‘no brainer’. The new finance minister, Michael Noonan, has stated publicly that the 10 billion Euro bailout package recently proposed was nowhere near enough to cover mounting losses from Irish banks. The figure, according to Daniel McConnell of the Dublin-based Independent is more like 25 billion Euros. This is above and beyond the €46 billion already committed in taxpayer bailout funds, €30 billion in NAMA bonds, and €70 billion from the Irish Central Bank.
Greece is in a similar state despite IMF bailouts. Greece’s largest lender, the National Bank of Greece announced a profit last quarter from a loss for the same quarter last year, but its deposits have shrunk by 4%, and the trend in non-performing loans for Greek banks was expected to remain unchanged for 2011, pegged at 12% by the end of the year. Hardly good news.
And lets not forget about every gold bug’s favorite punching bag, the United States dollar, looking more and more like the beaten up curbside hooker that she is, teetering ever closer to the realm of complete collapse.
Despite its apparent ‘strength’ and ‘resilience’ in the mainstream financial press, there’s simply no glossing over the fact that the global supply of U.S. dollars has increased by a factor of 3 since 2004, and there is little choice for the United States to continue printing more, since nobody is willing to lend them any more money in the form of Treasuries. Never mind ‘Quantitative Easing” 3. The insouciance with which this nation of future beggars flood the global market with their useless paper I making the prices of gold and silver go up simply in nominal terms, thanks to the never ending proliferation policy.
Quantitative Easing is counterfeiting, pure and simple, and future generations will look back and marvel at how the perpetrators of such ill-advised and desperate fiscal policy managed to stay out of prison for so long.
In the meantime, all the rest of us can do is trade in U.S. dollars for gold and silver as quickly as possible. The mantra for the immediate future is ‘gold for wealth preservations, silver for speculation’. This policy, rigorously adhered to, will be the most profitable strategy for household’s seeking to avoid complete financial annihilation.
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