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The ECB Blinked, And Gold Once Again Proves To Be a Wealth-Saver
As was widely expected, the European Central Bank has started a program of Quantitative Easing, something which the ECB vowed it would never even consider when the supranational institution was created. Situations can change and less than 10 years after its incorporation the central bank already had to deal with the worst financial crisis on the markets in decades.
Back in 2008 it already looked like the ECB was very hesitant to get involved on the market and the Eurozone was very fortunate to see a lot of spill-over effects of the quantitative easing program of the Federal Reserve, its American counterparty. Fast forward to 2012 when the Euro-crisis started to erupt and the collapse of Greece and the sky-high interest rates in other countries forced the ECB’s hand and a hefty market reaction was absolutely necessary.
When you look back at the past 5-8 years, these two events have actually paved the way for the ECB to take drastic measures like the announcement of a 1.1 trillion quantitative easing program over the next 18 months. The central bank will now start to pump 60B EUR per month ($70B) in the financial system which is more than expected. This means the total value of the Quantitative Easing program will be roughly $1.26B or approximately 10% of the total GDP of the Eurozone in just 1.5 years.
This could prove to be very effective, but the main question will be whether or not the full amount (or even half of that amount) will effectively trickle down to the ‘real’ economy. There are approximately 340 million inhabitants in the Eurozone, so the total size of the ECB’s Quantitative Easing project means that the ECB will print in excess of 3000 EUR per inhabitant. As this will be completed in just 18 months time, this is huge. Unfortunately there will be a lot of ‘middle man’ with sticky fingers and it’s increasingly likely the banks will simply deploy a large chunk of the QE money on the capital markets for their own benefit, instead of acting as an ECB agent to use the funds for what they were intended to be.
The Euro started to tumble versus the US Dollar when reports of Quantitative Easing emerged as the currency dropped by 11.5% in value in just 3 months time and seems to be on its way to reach parity.
What’s more important to discuss, is that once again gold has proven to be a safe haven for someone who wants to protect his wealth from a sudden currency depreciation. If we look at the 30 day price of gold in EUR, we see it moved up from 960 EUR on December 25th to a stunning 1149 EUR per ounce as of the market close on Friday which is a 19.7% jump in just one month time. A part of this was caused by an increased gold price expressed in USD, but this accounts for only 9.2% of the increase, so less than half. Another (partial) explanation is the ‘crash’ of the Euro against the Dollar, but this also had an impact of just 8.1%, so if you add both numbers, only 17.3% of the jump in the gold price can be explained by the two biggest forces in determining the gold price. This means that even if the gold price expressed in USD wouldn’t have changed, the purchasing power of a gold owner in the European Union would have increased even though the Euro lost almost 10% of its value.
This story is now focused on the Eurozone, but the United States might soon be in the same position. Right now, the USD is considered to be a safe haven currency, mainly because people are ignorant and believe the economic growth-story of the US government. But this charade might soon be over as the reality will set in. The Debt/GDP ratio of the USA is now a triple digit percentage and the budget deficit will only increase.
Gold has always proven its value. In Japan, more recently in Russia and last month in the Eurozone, the purchasing power of the citizens was safeguarded by their gold holdings. Whenever a country is in distress, gold keeps its value.
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The Monday morning Whack-a-Stacker is underway...
;-D
Buy the expiry. It'll be prudent.
The price of gold in US currency, or any other is not relevant.
The price of gold will be determined by what you can get with it when your trade partner will no longer accept currency at all.
What does a price even mean when a commodity cost doubles in 48 hours?
There will be a lot of prices of gold in a currency collapse until a mean average is established by those that have it to use. The market will force price discovery, as it should.
Will an oz. of gold buy comfortable lodging and meals for a month as it once did in the American West? Hard to say.
Welcome to real money.
I don't know if the POG is going up or down. I do know that as long as the gold derivative market exists the price can be manipulated by any entity with unlimited funds and the will to control it. No real gold is required to achieve this goal.
When it is a physical only market...well when that happens it will probably be too late to buy gold at any where near the current price.
“this charade [dollar strength] might soon be over as the reality will set in.”
And, what is that “reality”?
The answer comes from examining un-anticipated consequences of governments’ attempts to guarantee bank deposits.
By these attempts, the government would seize a failed bank and guarantee all deposits up to, for example, $250,000; amounts over that limit would be lost.
This immediately created major problems for individuals and companies with larger deposits. A company with a “cash” (checking account) balance of $500,000 (add as many zeroes as you like), was suddenly at risk to lose very large amounts of money.
A relative stampede ensued as large depositors sought means to avoid these losses. A result was a so-called zero-balance checking account (aka many names). By this operation, balances would be swept into US Treasuries at the close of business every day. Then, if the bank failed (was seized) after closing, the company would lose nothing.
Soon, there weren’t enough Treasuries to meet demand. This led to the huge demand for Mortgage Backed Securities (MBS) as alternatives to US Treasuries.
As a result of these operations, huge amounts of “money” disappeared from the so-called “monetary base”; which, formerly, consisted of paper currency and bank reserves. Pre-crisis of 2007, this “monetary base” stood at $0.9 trillion, as evidenced by the Federal Reserve balance sheet. The resulting invention of “cash equivalents” has ballooned to somewhere between $12 and $18 trillion.
So, in the time of some 7-8 years, the “money supply” has ballooned from $0.9 trillion to $15 trillion (approx.). What Price Gold… will give you more dots to connect.
What do you think lies ahead? That’s right: a hyper-inflation of the dollar to extinction; and it will take everything with it – on a planet-wide scale.
Deleted: duplicate of comment at 18:33.
My LCS has a sign that says "due to futures activities in the gold and silver markets, they are raising their premiums."
He explained that futures were dropping but spot price was rising. Isn't that backwardation, I asked him. He didn't know what I was talking about. Oh well. At least I know what it is and what it means. It means he plans on making money due to the shortage that will be coming.
For the USA, instant 3th world status
I am lucky I have been in a number of countries having economic problems;
Argentina, Bolivia, Nicaragua, Venezuela, Russia, so I know what to expect in the future
If the dollar gets devalued by half, a lot of baby boomers retired or about to retire will be wiped out. Their savings will only buy half the former standard of living.
The people who have nothing will have nothing to lose. Those on EBT will still get their monthly food allocation. The question is, are prices going to adjust fast enough to the devaluation?
If you have a wage job, your salary will have effectively been cut in half. Supermarkets and other businesses will raise prices overnight to stay in business, while your typical wage earner will have to wait 1-2 weeks for their newly adjusted check to come in. Assuming that their employer actually adjusts it.
Some people will have to go hungry. Some kids will go hungry. What do people do when they're hungry and they see the hunger in their kids eyes? They fucking riot, pillage and loot.
Bemused Observer Better to say I know someone who is selling gold and if you are interested I can contact him and see if he still has it for sale. You don't want to state you have it (especially on your person) There will be a bunch out there looking for us stackers to relieve us of our savings. Take them out in th elake where you had your boating accident and tell them, "Its down there somewhere".
we few, we happy few, we band of silver holders . . .
if you can't throw it
at the old ladies cat
you don't own it ..
Amen, brother, amen.
I've noticed recently that my LCS is out of almost all gold and silver bullion products. This guy says the same thing on CNBC
http://www.thedailysheeple.com/rick-harrison-has-some-interesting-things...
Anyone else seeing this also?
My Coin Dealer says.. I have it but i am not selling at these prices
I just found a local guy who deals in coins and bullion. He has indicated his business is up a lot over the last few weeks.
He can get whatever you want. No shortages, yet.
Meet Bloomberg’s Latest Idiot: Shobhana Chandra On Why Falling Prices Cause Hungry People To Starve http://davidstockmanscontracorner.com/meet-bloombergs-latest-idiot-shobhana-chandra-on-why-falling-prices-cause-hungry-people-to-starve/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM by David Stockman
Well now hold on a second there pardner. There ARE risks of hungry people in an environment of continually-deflating prices. I'm not saying we're in deflation now, I am saying we ought not underestimate the problems inherent falling prices. Just ask anyone 85 years or older.
Edit: I was reacting to the article title. Then I read the article. Hmm. Interesting.
Really? The over 75% employed in the Great Depression enjoyed the decline in prices and had quite a good life. Prices move before wages.
When gold reasserts itself, many here in the US are going to be taken by surprise. Although many of us do stack, we are the definite minority...
When TSHTF, I'd suggest that my fellow gold 'collectors' keep their holdings very, very quiet, for awhile anyway. If you DO have to use some, do it sparingly in small amounts, and make like it's the last bit of gold you have...
I just have the feeling that in the immediate aftermath of a real collapse, there will be a lot of resentful folks with NO gold or silver at all...maybe they sold it all to a "We Buy Gold!" place back when they thought it really WAS a barbarous relic. You don't want to attract their attentions, at least until things settle a bit.
It's not really TPTB that you have to worry about after all, it's the guy living down the block, the one who wonders how you are able to make purchases when he isn't, the one who sees you taking stuff out of your car and bringing it into the house.
TPTB will have their own problems to worry about, it's those nosy neighbors you need to keep your eyes on.
In this country I think they'd use propaganda to get us to turn each other in should they decide to try a confiscation. They wouldn't seriously consider any kind of direct door-to-door type of collection, not here. Too many armed people, and those who stack gold tend to stack guns and ammo too. It won't be SWAT teams TAKING your hoard...it will be your neighbors turning you in.
Keep stacking, and keep your mouths shut about it. The "I told you so" urge just isn't worth it. If gold does start to spike up in price, make little comments like "I wish I'd kept that gold, but I HAD to sell..." and shake your head sadly...
For nosy neighbors I have a nice accumulation of lead bullion also.
Oh god. I am so sick of articles that push gold. Can't they come up with something else. Newgold perhaps? Gold 2.0?
Uhm, what do you expect people who sell gold to push? Olive oil?
Jim Willie says we're gonna get a new dollar, with maybe a 30% devaluation. That will be something new and different, and lots of fun, huh? This constant harping on gold and silver is indeed getting old.
You're just joking, right/ ? hmm / / surely, you understand that if the new currency is devalued that your Silver, not Gold, because Banks and Governments love Gold, and they have more guns than you do; but your Silver will be instantly worth twice as much in new dollars; due to fear and overshoot in the market; YOu do understand this right ? And this is preferable to a 30% haircut, right ?
Oh yes...new currency is coming, I'm sure of it. Devalued of course, and done in such a way as to preserve all the debt obligations...they'll make you pay, one way or another, rather than write off a single nickel.
It will fail, of course, and the attempt will mark the final homestretch of the collapse. It will be a final act of desperation by TPTB.
Play with their fiat, in whatever form, for as long as you have to, but keep your real money...your gold and silver...secured so that you will have SOMETHING left afterwards.
As for assets, like land and such? They're fine, but you don't want to buy land or other immobile assets during uncertain times. If you must bug out quickly, you can bring your gold, but your land will have to be left behind.
Wait for things to settle, THEN buy land under a new system where your property rights will be more secure. You also want to wait out the debt-deleveraging that will result in MUCH friendlier prices down the line for those with the real money to take advantage of them.
Everything I've read about major economic upheavals has shown me that those with gold and silver have the best chances of getting through it. Those who try to keep their wealth in the currency du jour are lucky to retain the shirts on their backs when their economies go under. People survive by what they are carrying in their pockets, not by bank accounts containing devalued or worthless fiat. This has been learned by many folks forced to flee countries in turmoil, and by those left behind as those countries completely re-write all their rules. Those with their wealth in the currencies lose everything, those who have PM's have the 'seed money' to start over.
This is wordy and wonky and written by an academic Scot...but it is the best report on a hyperinflationary currency collapse we have:
http://thirdparadigm.org/doc/45060880-When-Money-Dies.pdf
If you want to see how money really dies, it is a good read.
Good advice. I would add that not only can you not take land with you in the event of a monumental bug-out crisis, you can't take with you any mobile assets you might have purchased with funds instead tied up in your no-or-low-mortgage, high equity real estate. With low interest rates and a potential crisis around the corner, it pays to reduce your home equity and use some of those freed-up funds to purchase portable wealth, be it PM's, art, jewelry, whatever.
Yes, now that would be fun. And exciting. But I suggest it isn't going to happen in my lifetime, and I am pretty young. I guess the reason it (gold) gets so boring is because I own some. It is the least exciting investment I have ever had. I think I am going to borrow money to spend on currency trading via binary options instead. Get that heart pumping.
@15
and no mules yet?
I up arrowed you because I understand that youngsters don't get the wealth preservation part - they haven't lost big yet and think gambling is a way to get rich.
So I understand your thinking. Right now I'm older and personally clinging to precious metals. I hope they can "float the boat in the upcoming tempestuous seas."
Apparently Darwin was right.
gold always stays the same. its just money that changes value.
1oz gold always equals 1oz gold, toilet paper money, not so much but most people have never seen gold outside of jewelry and all the 'smart' people tell them it's not 'real' money. There is a surprise coming and the sheep will not like it.
A lot of smart people in India see that gold jewelry as money...:-) They've been doing that longer than we've been a country.
'Gold loans' made on a woman's jewelry have helped many a small business get started over there...these folks aren't being 'courted' by the big banks, but then they don't NEED those kinds of loans. Personally held gold, in the form of women's jewelry, has been a mainstay of rural India's economy for centuries.
I'm sure many here would see that as quaint. I see it as smart. It keeps one's personal 'money' out of the hands of the banks...it's being worn, not deposited...and prevents authorities from stealing value by fiddling with the currency. If gold goes up in value, all that value remains with the holder of the gold, it can't be skimmed by another party.
And gold loans don't result in the kind of debt-slavery we have here. As a collateralized loan, if it goes bad, the collateral is taken, and it's over. You don't get the kind of endless rolling over of unsecured debts to hide the fact that they are bad. Someone who takes such a loan and can't pay forfeits the gold, and can then start over. Unlike our unsecured debts like credit cards, student loans etc, that can follow us for life because there IS no collateral to seize, and the creditors just want to keep payments coming in to keep the loan 'alive' as long as possible.
OK, I'm not arguing with your premise, simply suggesting that you're not _quite_ on the mark with timeline, and that's well... amusing...
[para.] Indian civilization has been gold-based longer than the USA (?) has been a country.
So the USA was founded in 1776, yielding a "history" of let's round to 240 years.
The Indus valley bronze-age culture that was sure to have had _some_ influence from the Egyption region has roots to at _least_ 3,300 Before [they nailed a jewish cultist to the] Cross, yielding a "history" of.... north of 5,315 years.
So yes, your statement is factual 5,315 > 240
But come on man... give it it's due!
In India gold jewelry is seen more as a readily converted asset as much as anything and the Chinese see it the same way. But then again, they have a closer view of what chaos looks like than the Average citizen in the USA and EU.
But, but, but, it is your patriotic duty to allow your savings to be repothicated and used to the benefit of Banksters...