Gold Tracks With Euro

Chris Poindexter
Posted: Feb 01, 2012 12:01 AM

In early trading gold was up yesterday $15.41 to $1,745.13 an ounce, while silver is up $0.33 to $33.80.  Joining gold and silver on the run up were crude oil, platinum, palladium and copper, which is up almost 1 percent overnight. 

The optimism propelling the euro higher against the dollar stems from good news out of the Euro-zone debt negotiations.  Greek Prime Minister Lucas Papademos announced progress had been made in debt-swap negotiations with bond holders toward restructuring part of their debt.  European chiefs meeting in Brussels agreed to accelerate the introduction of a 500 billion euro rescue fund. 

If this all sounds vaguely familiar it’s because we’ve all been to this rodeo before.  Europe has been on the verge of collapsing from sovereign debt for a year and their solution was to print trillions in new euros.  The sudden infusion of cash has kept Europe on its collective feet, limping from one near disaster to the next. 

As we’ve learned on this side of the Atlantic, you can’t bail yourself out of financial trouble with a printing press, though you can prolong the agony.  The plan seems to be to throw money at the problem until the economy recovers and we can grow ourselves out of trouble.  Too bad it’s not going to work this time.

Some people use the global financial situation to paint a doomsday scenario of economic collapse; I would invite you to consider that we could be facing something far worse.   We could simply reach a point of equilibrium, like a pot of boiling water, and no matter how much heat we inject into the pot in the form of cash it just forms another bubble which lifts the economy momentarily and then pops as we crash back down to where we were. 

At least a global economic collapse would reboot the world economy; we’d all be starting fresh.  What we have now is a collection of zombie economies; not living and thriving, but not dead. It’s global economy shuffling along in a stagnant equilibrium while the population continues to grow faster than our ability to sustain them. 

What that means going forward for you personally is that a defensive posture on investments, holding on to the wealth you accumulate, will remain the best long-term strategy.  Until a sustainable driver for grow materializes, investments like precious metals, which will retain some value no matter what happens to currency, will be an integral part of your portfolio. 

Chris Poindexter, Senior Writer, National Gold Group, Inc