Oil, Gold Rise And Silver Surges To Record On MENA Contagion And Greenspan’s “Faulty” Fiat Currency Concerns

Tyler Durden's picture

From GoldCore

Concerns about Libya, Saudi Arabia and the Middle East and North Africa continue to dominate markets. There are growing concerns of contagion and oil supply disruptions from the region. Oil and gold have risen and silver for immediate delivery surged another 2.3% after climbing to $36.5375, the highest price since Feb. 14, 1980 when silver reached a it’s nominal high $50.35.

WTI Crude Oil – 5 Year (Daily)

Oil (WTI) rose 6.7% last week and contributed to silver rising 6.94% and gold rising by 1.33%. These gains have been added to again this morning. Growing concerns that surging oil prices will lead to further inflation and snuff out the already tentative global recovery will lead to continuing safe haven demand which will support the precious metals on dips.


Gold in US Dollars – 1 Year (Daily)

Currency debasement on a scale never seen before in modern history continues in the U.S. and other countries. This is leading to a real risk of stagflation and possible even hyperinflation if sane monetary policies are not returned to soon.
The fiat currency experiment of the last 40 years (since Nixon came off the Gold Standard in 1971) grows more precarious by the day. Ironically, Alan Greenspan, the central banker most responsible for the cheap money policies and asset bubbles of the last 20 years, has again warned about the euro and dollar being “faulty” fiat currencies.

Greenspan again said how gold is the ultimate form of payment and currency (see interview and transcript of interview in News).

Reuters Thompson CRB Commodities Index – 5 Year (Daily)

"What the price of gold is saying is essentially that there are elements within the marketplace which feel very uncomfortable with respect to what's going on generally," the former Federal Reserve chairman said. "It's not an accident that you're finding that central banks are going in to buy gold."

Greenspan emphasized that he isn't calling for a return to the gold standard. That's just not doable, he said. "I do think that to get a sense of the stability of the system, watching the price of gold is not too bad."

NEWS

(Bloomberg) -- Barnes Tells CNBC Sees Silver Prices Extremely High Over 3-5 Yrs
Peter Barnes, chief executive officer of Silver Wheaton Corp., told CNBC that he sees silver prices going to $50 in two to three years, and will be “extremely high” over the next three to five years and possibly longer.

(Bloomberg) -- Spot Silver Extends Gain, Rising as Much as 2% to $36.3125/OZ
Silver for immediate delivery extended gains, rising as much as two percent to $36.3125 an
ounce in Singapore today. That was the highest level since February, 1980.

(Bloomberg) -- S&P GSCI Commodities Index Extends Gains, Led by Cotton, Silver
The Standard & Poor’s GSCI Spot Index of commodities rose to as high as 728.58, the highest level since August 2008. Cotton, silver and crude oil led the gains.

(Bloomberg) -- Gold Advances to a Record on Libyan Unrest; Silver Reaches a 31-Year High

Gold climbed to a record in London and New York as escalating violence in Libya and concern inflation will accelerate boosted demand for the metal as an alternative asset. Silver rose to a 31-year high.

Clashes during the past two days have become more deadly as Libyan rebels moved along the coast toward Tripoli and government troops loyal toMuammar Qaddafi escalated their use of force. Concern oil supply disruptions may spread through the Middle East pushed the fuel to a 29-month high in New York. Gold typically moves inversely to the dollar, which fell to a four- month low against six other major currencies.

“We have a mix of inflation fears and safe-haven buying,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. “As long as the political unrest in the Middle East and North Africa region continues and oil prices stay at elevated levels,” gold will be supported, he said.

Immediate-delivery bullion rose as much as $12.05, or 0.8 percent, to $1,442.95 an ounce and traded at $1,440.93 at 11:42 a.m. in London. Prices beat the previous high of $1,440.32 set March 2 and gained the past five weeks, the longest winning streak since October. Gold for April delivery was 0.9 percent higher at $1,441 an ounce on the Comex in New York after reaching an all-time high of $1,443.30.

Silver for immediate delivery was up 2.6 percent at $36.5275 an ounce after climbing to $36.6625, the highest price since Feb. 14, 1980. That year the metal reached a record $50.35 in New York.
Weaker Dollar

Gold rose to $1,437 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,427 at the afternoon fixing on March 4. The U.S. Dollar Index declined today as a report showed European investor confidence rose to the highest level in 3 1/2 years.

“The U.S. dollar weakening is supporting gold prices,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland.

Concern about rising inflation and currency debasement drove gold prices up 30 percent last year for a 10th annual gain. Asian countries from China to Indonesia raised interest rates this year to curb rising consumer prices. Increasing food and commodity prices have contributed to unrest that toppled leaders in Tunisia and Egypt, with protests also erupting in countries including Iran, Yemen and Oman.

The United Nations estimated as of Feb. 26 that 1,000 people had died since the Libyan uprising began in mid-February. In Saudi Arabia, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

China Inflation

Chinese Premier Wen Jiabao told the annual National People’s Congress in Beijing on March 5 that reining in inflation is the nation’s top priority. European Central Bank President Jean-Claude Trichet said last week that the ECB may raise interest rates next month to fight accelerating inflation pressures. Federal Reserve Chairman Ben S. Bernanke has signaled he will keep the Fed on course to finish $600 billion of Treasury purchases through June.

“Basically you have an environment where you have rising inflation and increasing liquidity,” Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore, said in an interview with Bloomberg Television. “We have a very large physical position of gold and silver in the market.”

Palladium for immediate delivery rose 0.5 percent to $816.25 an ounce. It touched a 10-year high of $862.25 on Feb. 21. Platinum was 0.1 percent lower at $1,839.50 an ounce.

(Bloomberg) -- Vietnam Stops Gold Bullion Trading and Production Licenses

Vietnam’s central bank said it is ceasing to issue licenses for gold bullion production and trading, without giving a specific timeframe, according to a statement on its website today.

The State Bank of Vietam will eventually eliminate deposits in gold at banks, it said.

Vietnam’s banks have about 112 trillion dong in gold deposits, according to the statement.

(Bloomberg) -- John Paulson Hedge Funds Gain in February as Gold Price Rallies

John Paulson, the hedge-fund manager who earned about $5 billion last year, posted gains last month in all his gold-denominated funds as the metal rebounded from its January lows, according to a report sent to investors.

The Paulson & Co. Gold Fund gained 13 percent in February, erasing most of the January losses and leaving the fund down 0.5 percent for the year, according to the report, a copy of which was obtained by Bloomberg News. The Advantage Plus Fund rose about 7 percent in the gold share class.

Gold gained the most last month since April as violence in Libya and other states in the Middle East spurred investor demand for precious metals. Paulson, 55, is betting inflation will accelerate and fuel demand for the metal in coming years.

His investors can choose to have their stakes denominated in gold rather than dollars, meaning the value of their investment rises and falls with the price of the bullion.

Armel Leslie, a spokesman for Paulson, declined to comment on his February performance.

The dollar-denominated Advantage Plus Fund, which uses strategies designed to profit from corporate events such as takeovers and bankruptcies, rose 2.3 percent in February, according to the report.

Paulson’s dollar-denominated Advantage Fund gained 1.6 percent, while the gold-share class jumped 6.6 percent. The dollar-denominated Recovery Fund climbed 3.5 percent and the gold-share class rose 7.5 percent.

2010 Gains

Paulson benefited last year from his stake in the gold-share classes of his funds, whose gains were at least double those of the comparable, dollar-denominated shares after a 30 percent jump in the precious metal. His earnings in 2010 also
included a portion of the 20 percent performance fee the firm collected on its gross profit of $8.4 billion.

The Gold Fund, which can buy derivatives and other gold-exposed investments, jumped about 35 percent in 2010.

The dollar-denominated Paulson Partners Fund, which invests in the shares of merging companies, was up 1.6 percent last month and rose 8.4 percent in the gold-share class. The dollar-denominated Partners Enhanced Fund increased 2.8 percent, while the gold-share class climbed 6.2 percent.

Paulson’s dollar-denominated Credit Opportunities Fund rose 1.9 percent last month and its gold-share jumped 5.6 percent.

(CNBC) -- CNBC EXCERPTS: DR. ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN, ON CNBC'S "SQUAWK BOX" TODAY
Following are excerpts from the unofficial transcript of a CNBC interview with Former Federal Reserve Chairman Dr. Alan Greenspan today on CNBC's "Squawk Box."

GREENSPAN ON OIL:
"One thing that economists have been bedeviled by over the years is that the correlation between oil prices on a global basis, and global economic activity is far more precise than any evidence we have that it should be, in short, as a leading indicator, global oil prices are a very useful statistic, the only problem is we don't know fully where all the channels are."

GREENSPAN ON MOMENTUM:
"My view is that when oil prices get up to this area and start to move up even higher, you do have to start to worry, but there is no question at this stage that the momentum of this economy, leaving out the oil price issue, leaving out the Euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum."

GREENSPAN ON MOMENTUM:
"There is no question at this stage that the momentum of this economy, leaving out the oil price issue, leaving out the Euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum."

GREENSPAN ON FORECAST:
"The fascinating issue for forecasters is how do you factor in all of the negatives because there are not sort of modest rises here, modest costs here, these are big stuff on both the debit and the credit side, and how its going to work is not all together clear-- but for the moment this economy is moving."

GREENSPAN ON CURRENCY:
"When you have two faulty currencies, and the euro and dollar are both faulty, but probably almost equally faulty, so that the exchange rate between the dollar and Euro is not really moving all that much."

GREENSPAN ON GOLD:
"What the price of gold is saying, is that there elements within the marketplace that feel very uncomfortable with respect to what is going on generally, and its not an accident that you're finding that central banks are going in to buy gold and one of the reasons is gold is historically one of the rare media of exchange that doesn't require any collateral or backing, counter signatures, gold is universally acceptable as a means of payment."

GREENSPAN ON THE GOLD STANDARD:
"I'm not saying we can or should go back on the gold standard, that would be extremely difficult, and it would require such cast changes that this society has made no indication that it wants to do that, but I do think to get a sense of the stability of the system, watching the price of gold is not too bad."

GREENSPAN ON OIL PRICE:
"When we talk about the price that will hit us, keep an eye on brent and not on WTI, that has got technical problems."

GREENSPAN ON FORECLOSURES:

"I am assuming, and this is an assumption, that the foreclosures will begin to slow down, they are beginning to slow down, but the problem that we've had is such a large proportion of sales are distressed sales, and clearly if you have a significant proportion in that category, the overall price level is going down."

GREENSPAN ON HOME PRICES:

"Ultimately what is the determinate, as far as I'm concerned, is basically whether or not the price, excluding distressed sales, is falling, because the other is a statistical problem, I'm not saying its not real, it is real, but it gives you a false signal, so I'm watching the less distressed sales, now I must admit those prices have edged down recently somewhat to my surprise. But not enough to create where I think the problem is."

GREENSPAN ON MORTGAGES:

"When subprime went underwater, they were very rapidly going into foreclosure because they couldn't basically live with it, but the vast majority of conventional conforming mortgages, even those which were underwater, are none the less capable of being financed by the people who live in the homes the proportion of conventional conforming homes that will be defaulted, is really very small."

GREENSPAN ON THE FED:

"At this point the Fed is in the position where it can contract its balance sheet very significantly and the issue is will they be able to do it in proper timing? They think they can."

GREENSPAN ON BERNANKE:

"These are judgments that you have to make, I know Bernanke very well, we worked together, Ben and I went over a number of crisises together, I know how he functions, I have considerable trust in his judgment."

GREENSPAN ON THE FUTURE:

"You're dealing with very difficult problems. The one thing we all pretend we can do but we can't, is forecast, the future out there isn't very bright."

GREENSPAN ON DODD/FRANK:

"I look at whole series of mandates in Dodd/Frank and I think some of them are internally contradictory, and we're going to find out if that is indeed the case when the regulators start to implement."

GREENSPAN ON CONSEQUENCES:

"What we're going to find is that the unexpected consequences of much of the new regulation that's going to come as a result of Dodd/Frank is going to have to reversed, and that's going to create very high degrees of uncertainty."

GREENSPAN ON TOO BIG TO FAIL:
"The purpose of a financial system is to move the scarce savings of a society into physically productive assets, we in the United States have been very affective in doing that, poor savings but very high rates of return. You start moving some of that scarce savings to propping up companies, it does not go into effective uses, and the result is output per hour slows down and standards of living slow down. So too big to fail is critically an issue with respect to standards of living, you have to have failures, JOE (HAVE WE SOLVED IT?) no we have not."

GREENSPAN ON SAUDI OIL:
"Saudi Arabia is, look- its got three and a half million barrels of standby crude capacity, nobody else has standby capacity, so Saudi is a whole game."