This Is What Gold Does In A Currency Crisis, Euro Edition

Tyler Durden's picture

Submitted by John Rubino via Dollar Collapse blog,

Yesterday the European Central Bank acknowledged that the currency it manages is being sucked into a deflationary vortex. It responded in the usual way with, in effect, a massive devaluation. Eurozone citizens have also responded predictably, by converting their unbacked, make-believe, soon-to-be-worth-a-lot-less paper money into something tangible. They’re bidding gold up dramatically.

So after falling hard in 2013 and treading water for most of 2014, the euro price of gold has gone parabolic in the space of a couple of months. This sudden rather than gradual awakening is the standard pattern for a currency crisis, mainly because it takes a long time for most people to figure out their government is clueless and/or lying. But once they do figure it out, they act quickly.

Gold in euros Jan 2015

Europe’s gold chart isn’t as dramatic as Russia’s (see it here) because Europe doesn’t depend on oil exports and the euro, while dropping versus the dollar, isn’t yet in free-fall. But with another trillion euros due to hit the market in the coming year, and a series of currency union-threatening political crises in the pipeline, the flight to safety could easily become a stampede.

Europe and Russia, meanwhile aren’t the only countries with incipient currency crises. Here’s gold in Canadian dollars:

Gold in Canadian Dollars Jan 2015

Just to be clear, this isn’t a prediction about the immediate future, but an attempt to illustrate the nature of gold. It behaves this way in crises because it is sound money which can’t be created in infinite quantities by panicked central banks as can euros, Canadian dollars and all other fiat currencies. These charts illustrate what happens when this difference starts to matter.

Right now, the fear is country-specific. Europeans start to distrust their government and shift to gold, without necessarily questioning foundational concepts like big, activist government and central bank management of fiat currencies. They still assume that the euro would be fine if managed correctly.

The next stage will begin when enough local currencies blow up to make people realize that the problem isn’t with specific governments or national forms of money, but with the idea of fiat currency itself. When that happens the global gold chart will look like Europe’s — but with more zeros.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bentaxle's picture

Nothing to see here. Move along please.

power steering's picture

Why did it bother with the round trip to $1800 ?

Aaaarghh's picture

as I understand it, gold overshoots its real value when its bought in a panic and then pulls back to its real value, but the last few years smacks of paper manipulation of the gold price downwards. Its been reported on ZH many many times.

me again's picture
me again (not verified) Took Red Pill Jan 23, 2015 9:44 AM

Give the date or remain silent.

fx's picture

nobody over here is running to buy gold. Gold just remains pretty stable versus the us$, so it rises in EUR terms. that being said, lots of people may wish to have bought here 5-10 years from now.

mickeyman's picture

It seems that here in China a lot of gold is being swallowed up by the market, but on a per capita basis it is still pretty small--not much more than 1 gram per year per person. Although it is easily available in local branches of banks, the smallest bars tend to be 20 g, and the workers at the bank are astonished that I want to buy the stuff (all they can talk about is the importance of buying real estate as a means of securing your future). I would conclude that although a lot of gold is being bought in China, it is being bought by relatively few people.

The biggest of the recent changes in gold (in non-US currencies) can really be viewed as an increase in US dollar more than an increase in the US dollar price of gold. http://worldcomplex.blogspot.co.uk/2015/01/near-term-struggle-for-gold.h...

BigJim's picture

 and the workers at the bank are astonished that I want to buy the stuff (all they can talk about is the importance of buying real estate as a means of securing your future).

Muppetry is a worldwide phenomenon

BaBaBouy's picture

CHECK OUT The CFTC COTS Report ... Massive GOLD Paper Selling By COMMERCIALS !

Report As Of This Tuesday Data.

Commercials Added Over 40000 Contracts NET SHORT !!!

http://www.cftc.gov/dea/futures/deacmxsf.htm

Save_America1st's picture

talk about parabolic...the U.S. dollar chart looks exactly the same, currently just under 95!  It hasn't been this high since 2003.  That shows you how badly the currencies the dollar is weighted against are tanking right now.

But paper gold and silver are still holding strong levels here near 1300 and 18.  Something's going to have to collapse soon, ay?

Fuck it all though...at this point there is nothing anyone can do to stop this insanity except prepare themselves, their families, and friends.  Keep stacking this cheap phyzz, keep stacking all other essentials (guns, ammo, food, water, other gear and supplies, etc.), and do what you can to try and wake a few more people up.

 

disabledvet's picture

The gold move in dollar terms has been truly MASSIVE.

BurningFuld's picture

So far China and Europe have kept things together pretty well, but, a propery panic in China or the Greeks dumping the Euro could change things in a quick hurry.

disabledvet's picture

Switzerland has dumped the euro.

 

Why would anyone hold the euro?

cnmcdee's picture

You are here => O (Central Banks Black Hole of debt).. 

This is the event horizon right before we cross into the point of no return - not even light can escape..

MarsInScorpio's picture

Ah yes - the barbaric relic . . .
-30-

disabledvet's picture

Was just researching how much debt has been denominated iin euros and it is a truly stupendous number.

 

If this currency collapses how will they raise money in anything other than dollars?

mickeyman's picture

@Burning

Cracks are already here in Chinese property market. Local governments are offering incentives to keep people buying.

7.62x54r's picture

China will recover. They don't have a mountain of debt, and they are converting $s into tangibles as fast as they can.

OhNo's picture

Well 70% of china;s GDP for the last 3 yrs or more has come from money printing so they do have a big fuckin problem too.

RaceToTheBottom's picture

What?  Printed GDP is not the same as real GDP?

IS that an authorized view?

Calmyourself's picture

1.3 billion people, their may not be enough tangibles to keep them in line..

Down to Earth Thinking's picture

Yep ,agree on all points but no need to stock up on water? just make your own

shovelhead's picture

The bank people wouldn't be entirely wrong about real estate, the question would be in the timing. The time to buy is when the money flows out to better opportunities and prices drop to reflect a more realistic intrinsic value.

The alternate opportunities for prudent money don't exist today and with banks propping up prices by holding inventory, a case can be made that right now, real estate is not the best investment.

Gold, on the other hand, is at fire sale pricing and if you believe the current con game can't last forever, gold would the best way to back that bet.

I hold both. My timing could have been better but it was a long way from being the worst. The main thing is having what you need when you need it.

Alea Iactaest's picture

@ mickeyman

You said, "The biggest of the recent changes in gold (in non-US currencies) can really be viewed as an increase in US dollar more than an increase in the US dollar price of gold."

POG at am London fix, on 2/1/15, was $1,184.25 USD. Today the pm fix was $1,294.74 USD. This is a change of +9.33% in three weeks. While the USD has certainly gained against other currencies, this is an annual change of more than +120%.

Clearly the POG has increased in USD terms, and you do a disservice by suggesting this is a non-USD phenomenon.

mickeyman's picture

It depends somewhat on your timeframe. On August 15, pog was $1296 US, and USD was at 81.424. Earlier today USD was at 94.994, and gold was $1294.75 

The most recent fireworks have had gold and USD rising together over the last four weeks, but the fireworks were really beginning before that.

Theosebes Goodfellow's picture

~"Although it is easily available in local branches of banks, the smallest bars tend to be 20 g,..."~

Mickeyman, what sort of premium over spot are the banks charging on the 20g pieces?

mickeyman's picture

The premium was about 3%.

The premiums on silver here are monstrous. In November, you couldn't buy anything (even in the kg size) for under the equivalent of $38 US/oz.

KnuckleDragger-X's picture

Just remember, this is 'paper' gold but it is a good indication of what people really think about that "barbarous relic" of the past....

max2205's picture

Currency windfall tax coming to a euro country near you 

Creepy A. Cracker's picture

It already exists in the U.S.  Gains for gold and silver, even the paper version, are taxed at the higher, collectibles, tax rate of 28%.  You see the IRS in their infinite wisdom believes that one is buying and selling collectible coins when one buys/sells gold and silver ETFs.

Quinvarius's picture

That is not how the collectible tax rate works.  It is actually a tax benefit.  The collectible rate is the max you will ever pay.  Not the minimum.  Trading metal short term you still pay normal cap gain taxes.  Long term, you can make huge profits and still only pay the collectible rate no matter what tax bracket you end up in.   

Mandel Bot's picture

Absolutely correct fx. This article is bullshit. The hockey stick curve mirrors the decrease in USD/EUR. Nothing to do with europeans buying gold.

Just multiply the price in euros by the exchange rate and you get the price in dollars. Easy.

disabledvet's picture

Well...the price in dollars is up a hundred bucks.

 

We have zero deflation since the start of QE too.

 

Is there a CME in Europe?

Alea Iactaest's picture

@ mandel bot... You said, "Nothing to do with europeans buying gold."
I suspect you might come to a different conclusion if you actually looked at volume, in addition to price. Volume is significantly higher over the last couple of weeks than it was for the previous year. This buying can not simply be Chinese and Russians, especially since we all "know" Americans aren't buying gold. Please check your facts.

disabledvet's picture

You can still corner a market in the USA.  "Just start buying up all the futures contracts.". If the price goes through the roof that will force actual delivery of the commodity.

 

I find the whole "renewable credits" thingy really fascinating...basically forcing oil refineries to subsidize ethanol production.  The prices have gone through the roof again even though we're swimming in product!

 

That says to me "just start buying the underlying commodity instead" (corn)...drive the price up to a million bucks a corn cob and "see how many corn cops arrive."

 

Talk about a bubble!

Squid-puppets a-go-go's picture

Korrect. and the increased buying is coming from the institutional investors - this is conviction buying by those in the know. And for those in Europe that dont know yet - one look at the chart above and they will want in the lifeboat, too

Questan1913's picture

"nobody over here is running to buy gold"

 

REALLY?

Two weeks ago I checked prices on gold over at dollarcollapse.com.  The top three dealers including Texas Precious Metals, the highest rated national gold dealer had NO STOCK in US Gold Eagles.(which amazed me).

Uber Vandal's picture

March 17, 2015.

I just have a bad feeling about that particular date.

Maybe it's just a dentist appointment.

SoberOne's picture

St. Patty drunken boating accident with your PM's.

fxpmtrader's picture

Me thinks middle of the year - around June/July.

Dame Ednas Possum's picture

"Give the date of remain silent"

That is an idiotic statement on many levels.

'Me again' bio:

"72 yrs. old. IQ147 SAT800 in 1959. private estate in Hawaii. retired during the first Silver bubble in '79-80. It was an accident; I mean I put my inheritance in Bullion at two to one margin, but I had no idea it was going to go from $4.79 to $25; where I sold out; "too soon". Bought Chrysler Motors for $3 or better in 10,000 share blocks until I had 2 million dollars worth; dumped it at $16; retired to sail around on yachts and study the sexual habits of college girls. I know a lot about markets and history."

These shill trolls are farcical.

Back to masturbating in your grandmother's den between posts while you wait for your pay check from your employer at Trolls-R-Us...you overweight, greasy social misfit.

indygo55's picture

One week six days a ZH blogger. Who the FUCK are you??

TheSecondLaw's picture

Who the fuck are you?  ZH elite?  Isn't ZH precisely about "Fuck the elite"?  If he/she has something to say, then he/she is welcome to say it. Fucking hypocrite.

lunaticfringe's picture

From his own bio:

72 yrs. old. IQ147 SAT800 in 1959. private estate in Hawaii. retired during the first Silver bubble in '79-80. It was an accident; I mean I put my inheritance in Bullion at two to one margin, but I had no idea it was going to go from $4.79 to $25; where I sold out; "too soon". Bought Chrysler Motors for $3 or better in 10,000 share blocks until I had 2 million dollars worth; dumped it at $16; retired to sail around on yachts and study the sexual habits of college girls. I know a lot about markets and history.

Key word: "inheritance"

JRev's picture

Translation: Never worked a day in his life. And may or may not be an old, creepy stalker. What a guy.