Thursday, March 31, 2011

Central Banks Printing More Money

Right now central bankers around the world claim we will not experience another inflationary crisis, but we’ve been here before, and there’s no reason to suspect it can’t happen again. Today our central bankers are as confident in their ability to control inflation (Mr. Bernanke claims 100% confidence) as they were in the soundness of the financial system in 2006. Yet history suggests they shouldn’t be, for inflation goes back almost as far as we do. While we’ve got a pretty straightforward “risk off” day in the works, at least we thought, another catastrophe hit North-east Burma rocked by two 7.0 magnitude earthquakes, close to the borders with Laos and Thailand, the US Geological Survey reports. If that’s not all, after this month’s disaster in Japan and Middle East tensions, there are the most recently signs that Portugal’s government will fall, potentially forcing the country into a European bailout, which has created some uncertainty in markets. Portugal’s debt crisis worsened after Prime Minister Jose Socrates quit–“Optimism over the state of the global economic recovery at the start of the year, which drove US real interest rates sharply higher – and gold prices lower – is continually tempered by the ongoing chaos throughout the globe, especially with events in the Middle East and North Africa (MENA) and Japan, sending the 10-year US TIPS yield down to near 80 bp, setting the stage for the next gold price rally. “We see strong upside to gold prices in the near term, but continue to expect rising US real rates to lead prices to $1690.” Says Goldman’s Jan Hatzius.
Gold rose for the sixth straight session, nearing a record in New York, as unrest in Libya and the Middle East and Europe’s lingering debt crisis spurred demand for the precious metal as an alternative investment. And while the U.S.-led alliance is preparing to direct more attacks against Libyan leader Muammar Qaddafi’s ground forces, as coalition members try to resolve disputes over who will take command, European leaders will meet this week to find a permanent solution to the region’s debt crisis, amid concern Portugal’s government to collapse. All this will keep “Gold prices to remain supported in the near-term by Middle East tensions,” Tom Pawlicki, an analyst in Chicago at MF Global Holdings Ltd. (MF), said today in a report, but “support could come from sovereign-debt worries as well in the euro zone. Worries over the safety of the euro could resume the push into commodities and hard assets as safe havens.” Gold may also rally to a record as investors from China, Japan and the Middle East buy the metal on expectations of “hyper inflation” created by central banks, according to Phoenix Gold Fund Ltd.
Real Drivers of Gold. “The real driver for gold is the ocean of new monetary reserves being created by irresponsible central banks around the world,” David Crichton-Watt, Kuala Lumpur-based manager of the $140 million fund, said in an interview. “Hyper inflation is a very likely outcome, so gold can go to any number of dollars.” Bullion may extend its 10th annual advance as demand for haven investments moves gold further North. Ron Fricke president of Regal Assets early this week said “Central banks globally are printing their currencies with no regard for the ramifications while behind the sidelines they are secretly amassing large holdings in gold.” And while European leaders will meet this week to create a permanent solution to the region’s debt crisis, Japan pumped a record 40 trillion yen ($494 billion) into the financial system since the temblor to soften the economic impact. “Western governments and Japan’s government are essentially bankrupt and have no intention of ever reducing their deficits or indebtedness,” Crichton-Watt, 63, said. “Once confidence goes, there will be a real panic.”
Mohendra Moodley, Sydney-based fund manager of Taurus Funds Management Pty, shares Crichton-Watt’s view that money supply has been very high in an attempt to repair the economies, while uprisings in the Middle East and Japan’s earthquake keep investors cautious. “Investors should continue to exercise caution, hold healthy positions in gold and keep portfolios relatively liquid,” Moodley wrote in a monthly report to clients yesterday. “Gold is nobody’s liability.” Bullion gained 30 percent in 2010 as central banks, pension funds and individuals sought protection against currency debasement and inflation after governments spent $2 trillion to salvage the global economy from the worst recession since World War II. There is an escalating Demand. “The demand for physical gold has been predominantly from China and the Middle East and I think this will continue and indeed escalate,” Crichton-Watt said. “Asia is where the money is, so this is where demand will center.”
“The market is not overbought much here, so I think it would have to go much higher before we have a major correction,” Crichton-Watt said. “Still, very few people own gold so the price will undoubtedly go much higher, and it will most likely end in a mania.” Institutional investors remain bullish on commodities. “Investors expect to see continued strong demand from emerging markets and they predict another strong year for commodities,” said Kevin Norrish managing director for commodities research at Barclays. “In addition, heightened geopolitical concerns, turmoil in the energy markets and rising inflation concerns will continue to cast commodity assets in a favorable light.”
Source: http://goldcoinblogger.com

No comments:

Post a Comment