Pascal
04-15-2013, 01:01 PM
When gold fell in 2008, it was a sign that individual investors had to raise cash to meet margin calls elsewhere.
Today' selling is different. This tells us that countries are on the verge of defaulting on their debt obligations. Because they cannot print, they are forced to pledge their gold as collateral or sell-it right away.
These countries are European. The gold dump is done in anticipation of such a wide forced selling move.
I am not sure that Spain, Portugal and Italy will be willing to pledge their gold assets. The biggest gold holder is Italy.
They do not have any Government that can decide for now. It the ECB (Germany) obviously forces these countries to pledge their gold as collateral, then they might prefer to leave (or threaten to leave) the Euro. Italy could think that if they return to the Lira, The Euro price will fall, gold price will increase (even more so in Lira) and their gold holdings will gain value, which is a good way for Italy to get out of the deflationary/debt crisis.
Therefore, the movements in the gold market tell us that there are problems in Europe: Germany does not want to lend/print without collateral.
If gold becomes the hostage of a political struggle, this means a lot of news based volatility ahead.
Pascal
Today' selling is different. This tells us that countries are on the verge of defaulting on their debt obligations. Because they cannot print, they are forced to pledge their gold as collateral or sell-it right away.
These countries are European. The gold dump is done in anticipation of such a wide forced selling move.
I am not sure that Spain, Portugal and Italy will be willing to pledge their gold assets. The biggest gold holder is Italy.
They do not have any Government that can decide for now. It the ECB (Germany) obviously forces these countries to pledge their gold as collateral, then they might prefer to leave (or threaten to leave) the Euro. Italy could think that if they return to the Lira, The Euro price will fall, gold price will increase (even more so in Lira) and their gold holdings will gain value, which is a good way for Italy to get out of the deflationary/debt crisis.
Therefore, the movements in the gold market tell us that there are problems in Europe: Germany does not want to lend/print without collateral.
If gold becomes the hostage of a political struggle, this means a lot of news based volatility ahead.
Pascal