Gold Breaks Out and Consolidates Above $1,700/oz – Financial Alchemy Risks Severe Inflation

Tyler Durden's picture

From GoldCore

Gold Breaks Out and Consolidates Above $1,700/oz – Financial Alchemy Risks Severe Inflation

Gold is trading at USD 1,708.20, EUR 1,230.11, GBP 1,071.37, JPY 129,700, AUD 1,650 and CNY 10,864 per ounce.
Gold’s London AM fix this morning was USD 1,713.00, GBP 1,070.69 and EUR 1,229.54 per ounce.
Yesterday’s AM fix was USD 1,656.25, GBP 1,036.19 and EUR 1,187.96 per ounce.

Gold in USD – 30 (Tick)

Gold has extended yesterday’s 4% rise in the US, with further gains seen overnight in Asia and consolidation in Europe. Safe haven demand continues due to increasing risk of a failed outcome from the European Union leaders' meeting scheduled later today and due to significant macroeconomic and monetary risks.

The cancellation of a European finance ministers meeting and downplaying of expectations by euro-zone officials about the outcome of the EU summit is adding to investor concerns about contagion emanating from the nexus of European banks and large sovereigns including Italy. There are conflicting reports that Berlusconi has agreed to step down.

U.S. Treasury Secretary, Timothy Geithner warned of the “catastrophic risk” posed by the turmoil.

The Bank of England dismissed the chaotic efforts to save the eurozone from financial meltdown as a temporary solution to the region’s woes.

Governor Sir Mervyn King said long term issues such as towering levels of debt and structurally weak economies still needed to be tackled.

‘The aim of the measures to be introduced over the next few days is to create a year or possibly two years’ breathing space,’ he said.

King’s warning follows that of former Fed Chairman Alan Greenspan who warned on CNBC two weeks ago that the EU was doomed to fail because the divide between the northern and southern countries is just too great.

The key problem facing bureaucrats and bankers of massive swathes of debt in the European and global financial system is not being tackled. They are attempting to rectify a problem of too much debt by further electronic and paper money creation and the creation of even more debt.

The growing risk now is that in a desperate attempt to solve the crisis, bankers and bureaucrats in the EU, US and elsewhere are practicing an extreme form of financial alchemy which risks stagflation and possibly in a worse case scenario hyperinflation.

Monetary economics and history shows that there will be costs and ramifications for the creation of billions and trillions of euros, dollars, pounds, yen and other fiat currencies.

The European Monetary Union (EMU) rightly expressly forbid the printing and electronic creation of money to bail out banks and sovereign nations.

A look at a history of currencies—including the mighty Deutsche Mark—shows the unavoidable results of currency debasement.

Other news
Bild reported, without citing how it obtained the information, that the Bundesbank’s gold reserves may be used as collateral in the event that the European Financial Stability Facility can’t meet its payment obligations.

For the latest news and commentary on financial markets and gold please follow us on Twitter

NEWS
(Reuters) -- Gold hits one-month high ahead of EU summit
http://www.reuters.com/article/2011/10/26/us-markets-precious-idUSTRE78M...

(Bloomberg) -- Gold Advances to One-Month High as European Debt Risk Stokes Haven Demand
http://www.bloomberg.com/news/2011-10-26/gold-advances-to-one-month-high...

(Reuters) -- Analysis: China's gold frenzy triggers birth of small bourses
http://www.reuters.com/article/2011/10/26/us-china-gold-exchanges-idUSTR...

COMMENTARY
(Money Week) -- The Gold Bull Market: The 144-day Moving Average Works Again
http://www.moneyweek.com/investments/precious-metals-and-gems/gold/hang-...

(Wall Street Journal) -- Hey, Look Who’s A Safe Haven Again! (Hint: Gold)
http://blogs.wsj.com/marketbeat/2011/10/25/hey-look-whos-a-safe-haven-ag...

(Goldseek) -- Chris Martenson: The Real Contagion Risk
http://news.goldseek.com/GoldSeek/1319472172.php

(ZeroHedge) -- Everybody Print! BOJ Will Reenter Global Currency Devaluation Frenzy To Kill Yen
http://www.zerohedge.com/news/everybody-print-boj-will-reenter-global-cu...

(MarketWatch) -- Why Gold is Rallying
http://www.marketwatch.com/story/why-gold-is-rallying-2011-10-26

Coins to Credit Cards, a Short History of Money: Neil MacGregor
http://www.businessweek.com/news/2011-10-25/coins-to-credit-cards-a-shor...

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max2205's picture

In the mist of gross market manipulation. And it don't make sense

bernorange's picture

The futures market wagging the physical market's tail doesn't make much sense. But given the role gold is playing in the currency wars these days, true price discovery is coming.

Oh regional Indian's picture

Max, perhaps you meant to say midst, but really mist works better in this market, eh?

Optically Misty days ahead...

ORI

Nuclear Echoes etc.

Smiddywesson's picture

Yes Max, this is a puzzler. I can't join the gold fans by saying it's because of events in the EU. The EU has been a basket case for some time now. This is definitely not news related, or if it is, it's related to news that has yet to become public knowledge.

I also can't agree with the author that a close above $1700 and trading in the $1700-$1710 range in the premarket constitutes "consolidation". We will see today if this thing has legs or not, but as far as I'm concerned, it needs some sort of a confirmation day to show it's for real.

Don't get suckered by the news explanation. The news was just as bad when gold tanked recently.

Quinvarius's picture

Substitute "tanked" with "got raided and had 5 margin raises in a row here and overseas".  Then you will realize your logic is backwards. The move down was the paper baloney. 

Smiddywesson's picture

Absolutely, and the five weeks of ranged bound trading were the result of manipulation. I get that. So what made TPTB stop manipulating the price and allow it to rise to the top of the range (and beyond now that we are at $1712? What has changed? My point is there is something going on that we don't know about that removed their foot from the brake.

OutLookingIn's picture

Tuesday at 1:30 PM EDT New York is the cutoff for this Friday's COT report. We know that the bullion banks (JPM, HSBC, etc.) are quite often 'tardy' reporting their numbers for the preceding Tuesdays trading at the cut off.

Me thinks they have used this same old, same old, to cover some more of their massive short position and then attempt to hide the fact, by delaying their timely reporting of numbers to this Friday's COT report.

Just more market fiddling. When they cover their shorts to that amount, has the same effect as a buyer with deep pockets showing up. Watch the COT report for hints, but you may have to wait an extra week! 

Greenspan Shrugged's picture

Gold is not breaking out to the upside, but to the downside.

 

http://finviz.com/futures_charts.ashx?t=GC&p=w1

tocointhephrase's picture

You must live in an upside down world then!

Greenspan Shrugged's picture

Not on a weekly chart my friend.  Look at the positions of large traders on the USD index.  This move in precious metals is merely a fakeout.

 

http://finviz.com/futures_charts.ashx?t=DX&p=w1

akak's picture

Your view is terminally short-sighted, at best.

Go call up the ten-year chart of the gold price, and then come back here and dare tell us that "gold is moving downward".  You daytraders are such a hoot --- always driving by looking at the pavement directly outside their open door, rather than looking forward and getting the big picture through their windshield.

Have fun with that "rising dollar", LOL.

Greenspan Shrugged's picture

Day trader?  If you look at the chart I posted it is a weekly chart.  We are talking near term future.  While you are talking 10 years?  Yeah gold will always continue to rise with the structure of the Fed but are you honestly telling me gold cannot take a hit here because it's gone up for the last ten years.  It will hit the 61.8% retracement level at 1450 I can promise you that.

akak's picture

You can promise us nothing.

If all your charts and squiggles were SO infallible, you would be relaxing on a beach somewhere after having retired a billionaire, rather than trying to convince us of your clairvoyance and prescience in an online forum.  But thanks for the laugh anyway.

Greenspan Shrugged's picture

I am not a greedy pig like most investors.  I guess time will tell in regards to gold.  Maybe I can recruit some investors out of all of this.  Look me up when I am right.

DosZap's picture

Quinvarius

As long as the CME doesn't JUMP IT yet again, and raise margins looks good.

They were a  factor we did not have to put up with when they show/ed they kicked the crap out of the rise.

Calmyourself's picture

GS, gold breaking out to the downside..  I sure hope so, I missed the wagon on gold..  Please let it be...

DosZap's picture

Calmyourself

Unless the CME raises margins again, and the market doesn't tank BIG,like down to 7500, you missed your shot at 1600,I fear.

From here out I think I start buying silver,or plat,pall.

Greenspan Shrugged's picture

Gold will be 1450 at year end. 

akak's picture

I think your crystal ball may be in need of a cleaning --- it evidently has a rather thick coating of bankster shit all over it.

Greenspan Shrugged's picture

No need to be rude.  I am just one man expressing his opinion.

DosZap's picture

Greenspan Shrugged

Appears the Comml Hedgers are moving the market here..............not a good sign.

pupton's picture

They probably should have turned off their ceiling fan light before recording this on their reflective TV screen...

HD's picture

Agreed - but it was the only daffy duck gold video I could find strait away. I wanted the video where he swims in a pile of gold...

NEOSERF's picture

And the printing of money and adding more debt to "buy time" is exactly what the US has done with not a whiff of a plan to actually create growth. Structural competitive disadvantages and lack of technological productivity growth cannot be magically fixed with refinancing underwater mortgages or paving more roads. The next 5 years are probably lost so the real question is whether the government will take a longer view, and start allocating capital to R&D, fix the patent system, withdraw troops and from the IMF, and raise tarriffs to protect jobs. A little period of isolationism here is exactly what the doctor ordered..

SilverIsKing's picture

You lost me at, "start allocating capital to R&D."

I don't want the government allocating anything nor spending any money on R&D for anything. Leave that to the private sector.

FunkyMonkeyBoy's picture

The headings on those graphs are inaccurate. Please replace the word 'Money' with 'Currency' or, my personal favorite, 'Jew Confetti'.

Strawboss's picture

First post as a new member of the fight club (although a long time lurker). Looking forward to mixing it up with you guys (and gals).

Silver is a better play than gold - in my opinion (although both will do well).

SilverIsKing's picture

I may have to change my name if you're wrong. Welcome aboard.

SilverRhino's picture

You and me both.  And welcome to the FNG.  :-)

El Gordo's picture

Never saw so many Netflix ads as I see here after reading about them.

HD's picture

Indeed. You'd be surprised how many Jim Cramer ads appear here too...which I assume is some type of comic relief.

Smiddywesson's picture

The ads are based on your viewing habits. All I get are ads for porn sites (probably a glitch)

tarsubil's picture

All I get are PM dealers. But now that I think about it, no gun ads. Very weird.

HD's picture

Just as well - my 870 gets jealous when I look at other "girls"...

Overflow-admin's picture

Et vive Adblock plus plugin (firefox, chrome, whatever... it works so well) !!!

 

So you can think freely without your brain being compromized by all that shiny blinky brainwashy ads.

Talleyrand's picture

Just don't forget to select the "Donate" link at the top of this page.

AngryGerman's picture

"U.S. Treasury Secretary, Timothy Geithner warned of the “catastrophic risk” posed by the turmoil." ... after looking in the mirrow this morning

akak's picture

This coming from Timmah "Zero Risk of US Credit Rating Downgrade" Geithner?

Color me amused.

Smiddywesson's picture

An open strongly above $1700 would be very telling.  We'll see.

JuicyGrabs's picture

EU won`t be able to do any money printing via ECB because Germany(the no1 EU member) clearly opposes it, although Sarkozy would love it. http://srnnews.townhall.com/news/us/2011/10/25/germany_against_eu_draft_...

 

China won`t lend to them and today Brazil said they won`t either. Without BRICS, leveraging the EFSF, they`re pretty much doomed. They`ll have to let some banks fail and we`ll see a big Lehman type scenario unfolding again. Following the pattern of 2008 crisis, gold and silver might tank for a while.

US Fed might restrain from more printing due to political opposition and riots accross the country. Printing more money would make matters worse for people, lowering purchasing power and creating even more riots in an election year.

Bashing the FED rethoric has become widely popular on both Occupy Wallstreet and in Tea Party and some FED members are afraid of being sacked if they don`t abide to political pressure. They`ll most likely do what`s good for them and restrain from printing.

 

falak pema's picture

The Austrian school wins over Keynesian and Monetarists.

akak's picture

Bashing the FED rethoric has become widely popular on both Occupy Wallstreet and in Tea Party and some FED members are afraid of being sacked if they don`t abide to political pressure. They`ll most likely do what`s good for them and restrain from printing.

When have they ever NOT done "what was good for them"?

In the end, they will print, and print with wild abandon --- it is their nature.

web bot's picture

Hey Mr. A.

What blog are you paying your visitations to for Leo? I'd also like to drop by periodically to pay my respects... if you know what I mean   : )

akak's picture

Hey WB,

Actually, I had been blasting leo in absentia here on ZH --- cant' remember which thread it was now, but it was a couple of days ago.  No, haven't seen his sorry statist ass anywhere online, not that I have been looking for him, or would want to run across him either.

web bot's picture

ohhh Ok. I thought you'd found another hole that he was occupying.

Thanks Mr. A.