Gold, the EU and the Fed

Bruce Krasting's picture

Central bankers hate gold. That’s surprising given that they
collectively own the lions share of what’s out there. The record is
pretty clear however, most of the majors have sold gold over the past
few decades. Today they have even more reason to hate it. It makes them
look bad. This chart shows that both the Euro and the dollar are losing
the race against gold as a store of wealth.

That the Euro is hitting all time lows against gold is an old story. But
the move has gone parabolic of late, including a 3% pasting today

A very high percentage of Europeans own some gold. Much more than
Americans. Younger people who don't own gold have parents that do. They
are more aware of gold as an asset class and something to turn to when
there is trouble. Therefore the collapse of the Euro against gold is
much more relevant then the fall in the EURUSD. EURGOLD is probably the
best barometer of how desperate Europeans see their collective financial
future. This does not bode well for consumer or business confidence.

The US Fed is adding to the misery of the EU Central bankers. They are
part of the problem, not part of the solution. They are contributing to
the appreciation of gold at a time when the Euro is weak versus the
dollar. This creates the exponential price action in EURGOLD.

Many things are influencing gold of late. Inflation in China, nuts
shooting cannons, a melt down of Europe’s financial picture and of
course the biggest of all is the Fed and its effort to create inflation
as a policy goal. What does this story from the WSJ do for gold?

It’s a good bet that Ben Bernanke and his talking heads will get their way. Actual inflation, and even worse, expectations of inflation
will rise. Gold will rise against the dollar as a result. It’s an
equally good bet that the Euro is headed lower against the Buck. So the
measuring stick that Europeans look at is going to get even more
stretched. I wonder if those European central bankers (and a few
political leaders) are hating Ben for adding to their woes.