The price of gold continued the triumphant summer rise and at the end of last week it stopped at $ 1597 an ounce, almost conquering the price of $ 1600. Seasonality is of great importance in the consumer goods markets, so the importance of the price rise in the summer cannot be pronounced enough. But it already shows a shift in perception of what is happening. Financial markets are beginning to open their eyes to the monetary nature of gold, despite Bernanke’s attempts to remain silent about it. Traditionally considered safe investments, sovereign debt, especially US debt, is beginning to lose its appeal.
Europe is mired in negotiations on financial aid to Greece, which are getting tougher than before. It is important to note that German Chancellor Angela Merkel and European Central Bank (ECB) Governor Jean-Claude Trichet disagreed on the ECB’s role in the alleged bailout. It is very interesting to see how the ECB fights desperately for what remains of its independence. ECB board member Lorenzo Bini Smaghi very aptly suggested that the European Aid Fund buy debt on the free market, which could mean a European quantitative stimulus option. Whatever aid mechanism you choose, you can rely on “creating air money” to buy depreciated debt at inflationary prices. Printing money has always been easy.
However, this summer’s real thriller takes place on Capitol Hill in Washington, DC, home of the U.S. Congress. Negotiations to raise the ceiling on U.S. sovereign debt have stalled and the August 2, 2011 deadline is approaching. Moody’s and S&P rating agencies have already warned of the consequences of a temporary or “technical” breach by the United States. It should not be forgotten that the AAA credit rating is a must for many pension funds, to which most of their money is invested in the safest instruments. If the U.S. credit rating declines, they could lose savings. In other words, if U.S. debt obligations lose the highest level of security, it will be difficult to imagine the extent of the panic that will affect the yield on debt securities and subsequently the dollar. Even if the U.S. national debt ceiling rises to $ 2.4 trillion, it will only be a temporary solution that will only delay the inevitable in 2012. The facts cannot be argued: 40% of U.S. government spending is funded by debt. The paper dollar is rapidly approaching the point of no return on its way to the paper money graveyard.
But the current state also has the other side of the coin: “hard” money has a chance to return. According to Jim Sinclair, gold is approaching a decisive mark and the price of gold of $ 1,600 per oz can be expected to fall behind soon.