Analyst: Gold Is Still a ‘Safe Haven’ — Despite Being Undermined by the Fed
- Posted on November 25, 2011 at 12:02am by
Becket Adams
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John Browne is a Senior Economic Consultant to Euro Pacific Capital and he recently had some very interesting analyses concerning precious metals, specifically, gold.
In an article written for Euro Pacific Capital, Browne starts by railing against the abject failure of the Congressional supercommittee:
The Congressional Super Committee, which had been created over the summer by the House and Senate to avoid responsibility for the debt crisis, chose to avoid responsibility itself. In so doing the Committee has followed the path of least resistance and maximum irresponsibility. Given the likely after-effects, the outcome should be judged as criminal dereliction of duty. It should now be crystal clear to even the most casual observer that a solution to the U.S. debt crisis will not come from within, but will be imposed, perhaps brutally, from without.
And though this may be true, Browne believes that the U.S. has been doing itself a diservice by directing its focus solely on the problems of the supercommittee while it should be focusing on actions being taken overseas:
. . . institutional investors remained focused on Paris and Brussels where beleaguered European banks continue to suffer from dangerous overexposure to bad sovereign debt. To avoid these risks institutions are locked into a flight to what they perceive as ‘safety.’ Despite the abject failure of American politicians many of these institutions may be flooding into U.S. dollars and U.S. Treasuries. The buying has driven yields to historic lows.
This unexpected fund flow is acting as a fortuitous camouflage for the U.S. Congress. With the U.S. dollar rising, and U.S. interest rates falling, the inability of Congress to curb its profligate spending habits appears in some eyes to be less urgent. At the same time, commonly held secure investments such as precious metals, appear to be increasingly volatile and viewed increasingly as less of a safe haven.
However, Browne is certain that these two approaches are “flawed” and run the risk of investor disappointment.
Why?
First, it is likely that a collapse of either the euro or the European banking system will flow rapidly to America, threatening U.S. banks, the U.S. Treasury market and even the continued viability of the fiat dollar-based monetary system. In short, the U.S. dollar and U.S. Treasury bonds are two massive but latent bear traps.
Simply put, investors need to be careful of both. Browne continues:
Second, the safe haven aspects of precious metals, especially that of gold have been distorted by the Fed. Most debtor central banks and politicians would be pleased by any reduction in the embarrassing ‘safe haven’ image of gold, and have historically done all that they could to undermine confidence in the gold market.
And this is the part of his analysis where Browne unloads on the Fed:
It is important to recognize the major distortion that Fed Chairman Bernanke has thrust into the gold price. Under his guidance, the Federal Reserve has abused its monopoly power to manipulate short-term interest rates, which are currently 1.5 percent below the level of inflation, a level that has inflicted, and will continue to inflict, untold damage on the economy. Negative real rates deny investors a secure economic repository for their cash. In reaction, many have used gold as an alternative to replace bank deposits. This added demand has boosted the marginal prices of gold and silver.
Today, precious metals appear to track stock markets. When stock markets rise, investors tend to hold their accumulated cash not in zero interest bank deposits, but in precious metals, driving prices upwards. When stocks fall in price, investors sell precious metals to raise cash to meet normal cash requirements including redemptions and margin calls, adding enormously to the marginal price volatility of precious metals. However, this volatility does not foreclose on gold’s ability to retain its value when confronted with additional rounds of currency debasement.
Second, precious metals are not merely a hedge against inflation. They are insurance also against financial catastrophe. With quantitative easing likely to be the recommended panacea for recession, we may face economic recession accompanied by financial inflation and a threat to the fiat monetary system. If this disaster transpires, one major safe haven could be precious metals. As a result, Fed inspired short-term price volatility should not deter investors accumulating positions on price dips.
If this is true, and that the U.S. economy faces the very real threat of “economic recession accompanied by financial inflation and threat to the fiat monetary system,” what is the bottom line?
“In short, the current news from both sides of the Atlantic should provide further reasons to feel comfortable with precious metals,” writes Browne.
Indeed, gold may be more than a good bet against a “financial catastrophe”–it may be the only bet.
(h/t Business Insider)
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KidCharlemagne
Posted on November 25, 2011 at 8:32pmA lesson not forgotten (at least by some):
“In reviewing the conflicts which have taken place between different interests in the United States and the policy pursued since the adoption of our present form of Government, we find nothing that has produced such deep-seated evil as the course of legislation in relation to the currency. The Constitution of the United States unquestionably intended to secure to the people a circulating medium of gold and silver. But the establishment of a national bank by Congress, with the privilege of issuing paper money receivable in the payment of the public dues, and the unfortunate course of legislation in the several States upon the same subject, drove from general circulation the constitutional currency and substituted one of paper in its place.”
Report Post »http://www.presidency.ucsb.edu/ws/index.php?pid=67087#axzz1TmsmyiuK
-Andrew Jackson, Farewell Address, March 4, 1837
jonbutterfly
Posted on November 29, 2011 at 4:44pmVery good. I like it. If you are interested in more information on what is going on or what is going wrong you should go back in history a bit and read for example Lords of finance. Another good source I can recommend for the ones who are afraid of 500 page books is http://www.djia.tv
Report Post »I like Jim Roger a lot…
nobummer12
Posted on November 25, 2011 at 5:50pmWhat about silver? I am not wealthy.
Report Post »sweetconcern
Posted on November 25, 2011 at 5:13pmIf we don’t END THE FED soon we will not have a USA it will be some UN Global thingy. We and children will just be their serfs and slaves. Look at the unemployment. I feel we have no other choice but Dr Paul. Sanity, Peace thru Strength, Life, Liberty, Property, and Sound Money backed by Gold. If you have a better solution please reply cause I am looking for the answere and praying for it everyday.
Report Post »lukerw
Posted on November 25, 2011 at 4:50pmIn the History of this World… GOLD has never been Unsafe!
Report Post »Salamander
Posted on November 25, 2011 at 12:02pmI’m buying Coca-Cola and McDonalds! A typical McDonalds employs about 60 people and Coca-Cola offers more than 500 brands in about 200 countries and territories! Gold prices are driven by fear and greed, both human nature. But, McDonalds and Coca-Cola sell life’s essential and comfort–and they have 100‘s of thousands of people out there every day trying to figure out what I couldn’t being to understand! Don’t TRADE stocks, but INVEST in fundamentals! A tiny piece of a company making money for you is worth more than a hunk of metal sitting in your house, making you a target!
Report Post »txpiper
Posted on November 25, 2011 at 9:16am“Be careful when buying gold bars. especially gold from China; the core might be bronze and only the surface is gold”
More likely tungsten which is all but identical in weight to gold
Report Post »AZGodGoldGuns
Posted on November 25, 2011 at 9:10amIn my upcoming book “America Held Hostage”, get info at http://www.conspiracyofcrisis.com
I address how the manipulation of the silver and gold market is done through the government shorting the options of metals, a week before the expiration dates. They conspire with the CME to up margin requirements causing massive selling to cover margins. This then dramatically brings down the price of the metals causing heavy losses for the speculators and investors, but big profits for the fed and government. The Central Banks then buy physical gold with these profits and drives up the price of silver and gold and the process is started all over again. Notice all the margin requirements have been raised right before expiration dates of options.
Report Post »Lost In Space
Posted on November 25, 2011 at 8:22amWell im not rich so my strategy cattle,pigs, chickens,canning equipment. ammunition, heirloom seed to last a decade. Stockpiling feed and fertilizer. Cannibis to trade to the Ronbots. I wonder if poppys would grow here?[for medicinall purposes only] Plus plenty of castnets for fishing the area waters.And material for a still, plus bycycles,poor people will need to travel.
Report Post »rox
Posted on November 25, 2011 at 9:53amWhere do you live?
Report Post »YepImaConservative
Posted on November 25, 2011 at 12:02pm“Cannabis to trade to the RonBots.” LMAO … and what do you expect to get in return? Those weasley little hemp hamsters will turn tail with their little felony feet and disappear quicker than a Texas Jack Rabbit!
Until they smoke it that is… then they are mere loafing Obama Liberals.
Report Post »Detroit paperboy
Posted on November 25, 2011 at 6:21amFood , water . weapons , toilet paper , propane. and cigarettes…. That will be the currency we use…..
Report Post »BSdetector
Posted on November 25, 2011 at 7:27amI’m stocking up on hard liquor too. Just like cigarettes, people are going to want their vices.
Report Post »50BMG
Posted on November 25, 2011 at 8:02amGold is not the only physical precious metal to own. Lead, copper, and brass will be essential metals, in the right shapes and sizes. In other words, ammunition will be currency, and a means of protecting assets and life.
Report Post »staggerlee32
Posted on November 25, 2011 at 3:11pmLOL…. DON’T trade your TP….. you will use it. You can’t have enough TP…. talk to people who have gone through economic collapses and the stores were emptied.
Report Post »MUDFLAPS
Posted on November 25, 2011 at 11:31pmyep from what Ive read, TP and Tampons are the valuable.
Report Post »TemayElbor
Posted on November 25, 2011 at 5:05amBe careful when buying gold bars. especially gold from China; the core might be bronze and only the surface is gold.
Report Post »dsind
Posted on November 25, 2011 at 7:46amare you saying bronze weighs the same as gold?
Report Post »if indeed a bronze bar was gold plated it would be a huge bar
in comparison to a gold bar.
only unless the core is small in bronze and heavy in gold on the
outside will this con work on intelligent ppl but might fly
past some less alert.
it is possible to be attempted though and china would
be one of the few to attempt this con.
thanks.
dsind
Posted on November 25, 2011 at 10:36amtxpiper has it right, tungsten would work.
Report Post »Tungsten is greyish/white really close to gold in weight as txtipper states.
It is used from my experience as an electrode it TIG welding because of it’s
high melting point, T representing tungsten.
An ounce of tungsten just flash plated with 24k will be VERY close to gold
in it’s demensions.
Scary!
SmoknHotPatriot
Posted on November 25, 2011 at 2:35amThe problem begins and ends with federal reserve. I don’t quote MSNBC very often, But Dylan Ratigan has it on the money here(pun intended):
http://www.youtube.com/watch?v=Mx_3lb9wfP4
Report Post »bullcrapbuster
Posted on November 25, 2011 at 1:45amGold and silver make damn poor soup. A starving person will trade a ton of gold for a bushel of wheat. Basic necessities are the best store of value. Store in bulk Then some gold and silver .
Report Post »MeteoricLimbo
Posted on November 25, 2011 at 1:39amLead is starting to look heavy…silvers up what, 100% from last Nov..
Report Post »grayling646
Posted on November 25, 2011 at 2:52amI still like lead…..in the form of 22′s, 38′s, 45′s etc
Report Post »ProbIemSoIver
Posted on November 25, 2011 at 1:15amEnd the fed now.
Report Post »If they say gold is valuable, we go to silver, If they agree silver is valuable, we then go to clam shells, found in U.S waters only !!!. We need to destroy the Federal reserve (A PRIVATE BANK ).
Seriously, We have to reinstate executive order #11110, granting authority to our treasury to print our OWN AMERICAN currency AGAIN based on a silver standard.
To save ourselves and Our Country we must Quit the UN.
America has been bankrupt since 1933, operating on emergency powers.
In 1933 the federal reserve bailed us out of the insolvency, but FDR pledged America, it‘s government and it’s citizens as collateral on that bailout.
Birth certificates became law in all states in 1933. Social Security came out in 1936, to track and garnish wages from it’s property (YOU)
All the tax money you pay goes to the IMF for decade-old debts.
It is a LIE that your money goes to roads, defense, schools, etc.
We are solvent only on more loans from the fed. This keeps us in debt and enslaved.
This 400 billion dollar “Jobs bill” is nothing more than another Federal Reserve loan.
The Treasury of the secretary is the manager of the Bankruptcy and presents to congress what his bosses present to him. The president and all the congressional clowns just receive it, promote it, and sign it.
The DemocRATS and the RepubliCONS are all the same. They are global elite minions putting on a show.
A shell game to keep your eyes of the real players behind the curtain.
Dadwithallthecoolstuff
Posted on November 25, 2011 at 8:56amso,if they collapse the system and anarchy prevails at least we know who to go after and eliminate..not all negative..a “New” United States of America could release itself from the debt and burden placed by the Fed and the corrupt bastards in Government.All we need is some Generals who are Patriotic and forward thinking to sieze control of the Government and bring the truth to the Masses and let the hangings commence.It makes me sick to know that what you say is the bitter truth.I pray everyday that God will bring the strength,truth and will to the new George Washington and Thomas Jefferson.
Report Post »THE TRUTH SHALL MAKE YOU FREE
Posted on November 25, 2011 at 12:31pmTha’s why I am voting for Dr Ron Paul, the other worthless cajidates don’t care about this, Only Ron Paul does. The Unfederal reserve IS the cause of most of our problems in the U.S.A
Report Post »Psychosis
Posted on November 25, 2011 at 1:11amgold will be well over 2000 soon guaranteed before next summer
but you go ahead and keep thinking otherwise
it is obvious to me you have no idea what is coming at full speed monetarily and when it hits , you will be standing at the bank wondering where your money is ……………..better you than me
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