Gold Reaches $1,900 Again - Supported by Risk of U.S. Recession, German Euro Risk and Wikileaks China Gold Cables

Tyler Durden's picture

From Gold Core

Gold Reaches $1,900 Again - Supported by Risk of U.S. Recession, German Euro Risk and Wikileaks China Gold Cables

Spot for immediate delivery rose to $1,903.00/oz as the dollar and all currencies fell against gold in early European trading. Risk aversion has returned due to concerns about the US and global economy and Eurozone contagion.

Gold is trading at USD 1,890.50, EUR 1,339.10, GBP 1,171.30, CHF 1,486.50 and JPY 145,350 per ounce.


Cross Currency Table

Gold’s London AM fix this morning was USD 1,896.50, EUR 1,341.13, and GBP 1,174.67 per ounce. The gold fix was higher than Friday’s in all currencies (USD 1,854.00, EUR 1,301.23, and GBP 1,143.81 per ounce).

The very poor employment figure in the United States has led to stock markets in Asia and Europe experiencing quite large falls. Also the exposure of the world’s largest banks to lawsuits which could cost billions is causing market jitters.

Despite continuing denial, a recession in the U.S. is inevitable; the question is only with regard to how deep the recession is and to the nature of the recession – inflationary, stagflationary, hyperinflationary or deflationary.

The consensus, especially amongst Keynesians, is that deflation is most likely. However, given the degree of currency debasement being seen internationally stagflation is also a risk. 

Hyperinflation, as being experienced in Belarus today, is the macroeconomic and monetary ‘black swan’.

There are growing concerns that the Eurozone crisis might degenerate again soon due to the Greek debt crisis and risk of default. Over the weekend talks between Greece, the IMF and ECB representatives over new bailout funds broke down.

The euro has fallen and the German local elections have added to concerns over Greece.

Exit polls suggest that Merkel’s ruling CDU has lost support ahead of parliamentary vote on Eurozone temporary bailout mechanism. There is also increasing speculation that she is preparing for a political farewell.

On Wednesday morning, Germany's Federal Constitutional Court will deliver its ruling - awaited for over a year - on suits claiming Berlin is breaking German law and European treaties by contributing to multi-billion euro bailouts of Greece, Ireland and Portugal.

There is a real risk that politics in Germany may soon lead to end of the European Monetary Union and euro as we know it. 


People’s Bank of China

Over the weekend, Zero Hedge picked up on the most recent batch of Wikileaks revelations showing cables from the United States embassy in China to State Department officials in Washington in 2009.

The cable summarizes several commentaries in Chinese news media. One of those commentaries is attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. 

Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. 

Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

The cables suggest that China sees gold as a valuable monetary and indeed geopolitical asset in order to further their aims to rival the U.S.A. as a global economic power. Something that we have long warned of.

The People’s Bank of China’s aims in this regard and their massive increase in gold reserves in recent years, is one of the elephants in the room ignored by many analysts and so called experts.

Even after nearly doubling their gold reserves to become the world's fifth-biggest holder of the precious metal - from 600 tonnes in 2003, to over 1,054 tonnes (announced in 2008), China still has less than 2% of its currency reserves in gold in marked contrast to most other large industrial nations including the U.S. (http://en.wikipedia.org/wiki/Gold_reserves).

The Chinese are nervous about the debasement of their $3 trillion ($3,000,000,0000,000) worth of U.S. debt and are continuing to diversify their currency reserves. 


Gold in Chinese Yuan (CNY) – 10 Year (Weekly)

In late 2010, a Chinese Chamber of International Commerce researcher said that China should "eventually boost its gold reserves to a level equal to that held by the United States". 

China's reported gold reserves total 1054 tonnes, a fraction of the 8133 tonnes held by the U.S.

Given the recent diplomatic tension between the U.S. and China (Tibet, Taiwan, Libya and Iran) there is an important geopolitical dimension to this story that is worth watching. 

China has diplomatically communicated to the U.S. financial authorities that they expect US monetary economic policies to be responsible and that the vast Chinese dollar holdings not be devalued.

Chinese diversification into gold will continue but the Chinese will continue to do so under the radar and will not broadcast their intentions for fear of driving down the dollar and up gold prices and then having to chase the gold market.

Far better to slowly and gradually pursue a policy of reserve diversification thereby accumulating gold without spooking markets are causing the gold price to surge.

This is likely the strategy of other creditor nation central banks and even many billionaires internationally.

China's intentions with regard to positioning the yuan as a global reserve currency have been declared by many officials. 

China wishes to internationalize the yuan by having important commodities such as gold traded in yuan. An official from the People's Bank of China said in May 2010 that China should develop more yuan-denominated gold investment products for 30 trillion yuan in savings the country has.

The official said that China's trading in yuan-denominated gold investment products boosts the internationalization of the currency and the country, stating

“A currency's international status depends on its being accepted in trade and settlement and having certain international commodities denominated in that currency helps China's goal to internationalize the yuan. Gold is a good choice to have yuan trading.”

China has been less vocal regarding the trading of oil in yuan or renminbi, but this is a likely policy goal and could potentially threaten the petrodollar and thus the dollar's reserve currency status.

Indeed, China has already done bilateral deals to buy oil and gas from some producing nations with yuan.

Speculation that the euro could supplant the petrodollar and the dollar as global reserve currency are now well and truly dead. 

China's growing political and economic clout, and the fact that it is the world's largest creditor nation mean that its currency poses a long-term threat to the dollar as global reserve currency.

Should geopolitical tensions continue to escalate between the U.S. and China, then the Chinese could use the gold and wider currencies market in a currency war.

Such threats to the dollar and growing concerns about fiat currencies internationally, mean that gold is likely to continue rising for the foreseeable future, and the inflation adjusted high of $2,500 per ounce looks inevitable.

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

SILVER 
Silver is trading at $42.52/oz, €30.10/oz and £26.35/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,871.50/oz, palladium at $763/oz and rhodium at $1,800/oz. 

NEWS
(Bloomberg)
Gold Climbs Above $1,900 as Concern About Slowing Economies Stokes Demand 

(Reuters)
Gold edges lower; growth worry supports

(The Telegraph)
RBS faces billion dollar bill in US lawsuit

(Reuters)
QE3 no silver bullet for markets

(Bloomberg)
BofA, JPMorgan Among 17 Banks Sued by U.S.

COMMENTARY
(Zero Hedge)
Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree 

(MarketWatch)
Commentary: Gold climbs back - Gold bugs cheers bounce-back

(Business Insider)
MAULDIN: It's All About The Jobs -- And Gold

(GoldSeek)
China knows about gold price suppression, and U.S. knows China knows

(GoldSeek)
MIDAS SPECIAL - WikiLeaks/US Embassy In Beijing Price Suppression Cable/China/GATA On The Move In Hong Kong And London

(Financial Times)  
The Worst of the Euro Crisis is Yet to Come

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bullionbaron's picture

If you think there is potential for the metal to hold or even run higher from these levels short term I think the preciouc metal miners offer a fantastic opportunity.

A huge breakout to new highs (and out of an inverse head and shoulders) on the GDX and HUI on Friday is very bullish and they are due for a large run.

Charts and further commentary on my blog:

http://www.bullionbaron.com/2011/09/precious-metal-stocks-breakout-gdxhu...

problemfixr's picture

I think you are on to something, Baron.

Precious's picture

"The problem with gold is that it's simply too expensive to melt into bullets." -- precious

jekyll island's picture

Let's be a little more specific, BB.  High quality miners will move forward, over 80% of mining companies do not make money.  Gold and Silver do not require management or have a board of directors making stupid decision, we have the government for that.  

Secondly, gold and silver producers have and will do well in the current fearful environment.  My gold explorers haven't done anything, some are down 40% or more.  Encourage people to buy mining companies with good management, good share structure, plenty of cash, good results and are already in production or just about to start production.  All the others are speculation and should be treated as such.  Oh, buy on the dips, 20% of what you would like on the first tranche and wait to see what happens.  I jumped in a couple times at what I thought were good entry points only to see them fall another 30% or more. That is the way of mining stocks.  If you can't stomach the risk, just buy physical gold and silver.  It will serve you well.  

bullionbaron's picture

You raise some good points. It is important to ensure you buy high quality stocks with solid management & a good cash buffer. For those who are new to the stocks but see the potential in them being undervalued as a sector then you could also look at exposure to an ETF which tracks a basket of miners like the GDX.

Fuh Querada's picture

Good quality gold (and silver)  mining stocks are a imho an essential diversification in addition to ETFs and to storing the physical metal, and having to worry about how safe that storage is. Doug Casey made a good point recently that we have fear mode now which will leave the junior exploreres untouched until the mania starts. Thus the producers are leading the current uptrend.

Thomas's picture

I would simply like to hat tip the guys at Goldcore for their nice summaries of the geopolitical foundations underlying gold.

MFL8240's picture

I agree but, must decide if you want a hard assett or more confetti.

jekyll island's picture

Your comment shows your ignorance.  You should not invest in mining stocks until you are holding physical PM's, at least a third of your assets.  If you do not have a strong foundation of physical metal no way should you be investing in the mining sector.  THEN you can speculate in mining shares for the upside potential they represent.  I have had two holdings double or triple in the last year: Great Panther Silver and Silverquest.  I sold half of the position and used the profit to buy a monster box of silver and still held a sizable stake in the companies.  I would say the risk was richly rewarded.  That is the value of the mining stocks, take the profit when available and move it into hard assets or use it to buy shares in another company.   

FEDbuster's picture

You should not invest in physical PMs until you have your food, water, first aid and the means to protect it taken care of.  Two years of storage for each family member and long term production solutions for food and clean water, IMHO.

jekyll island's picture

You're absolutely right, of course.  Fill up the pantry, drill a well, guns and ammo for protection, silver rounds to buy more as you need it.  Personally I think a 6 month supply would be enough, 2 years is not unreasonable.  

Smiddywesson's picture

Your logic is faultless, but you can do both.  These things are not mutually exclusive.  

On the other hand, let's play devil's advocate.

If you wait to amass physical, you are definitely going to pay a much higher price and be able to stockpile less of everything.

I sure wish I had bought my physical first and my food later.  That sentiment is likely to remain true right up to the time that food is no longer available.  Hopefully, that time doesn't even come.  If you believe in PMs, the time to start buying is now.

Snidley Whipsnae's picture

Miner = Liar standing next to a hole in the ground...

DoChenRollingBearing's picture

+ $1895 and green.

Physical > Miners

akak's picture

Bernanke = a-hole standing next to a liar who is brown.

jekyll island's picture

Thanks for the update.  Yawn.  Wake me when gold hits $2,500.  Probably next week. 

 

 

spiral_eyes's picture

stagnation, bitchez

abolish the gold standard, have a massage-the-figures money printing economy, watch your productive base, and social system fall to pieces.

http://azizonomics.com/2011/09/05/stagnation-nation/ 

Sudden Debt's picture

Actually, I think you can eat and ride them both. Even while sitting in that car.

 

chindit13's picture

Damn, why didn't I think of this when I was Marketing Director at Yugo?

thunderchief's picture

R  U Hard up for the Chinese chicks or the hot rides???... They are both a tough FUCK!!

Takes one to know one....

silvertrain's picture

Cnbc said last week that it looked like the Gold bubble had burst..Can something be a bubble twice in as many weeks?

DefiantSurf's picture

You are now dumber for having watched that crap, and we are all dumber for having read your comment on that crap...thx

 

Fiat2Zero's picture

We do need someone to "take one for the team" and watch that crap.  Otherwise how will we know what is being programmed into the sheeple?

StychoKiller's picture

If you repeat an untruth often enough, SOMEONE will be stupid enough to believe it! :>D

DosZap's picture

CNBC is a SHILL for the Traitors in the Treserve.............They would not know a bubble if it came out their nose.

We all know what a BUBBLE IS, and looks like..............

The Entire World may be in a, Bubble, but GOLD is not even close.

Smiddywesson's picture

Can something be a bubble twice in as many weeks?

Exactly, bubbles that are popped stay popped.  That's why they are called bubbles.

Bringin It's picture

OT, but check this out.  Ineresting?  Saw it on the AEP comments.

Tavistock: The Best Kept Secret in America

 

tamboo's picture

the 7-7  bus went off course and blew up right in front of the place,

nice little inside joke eh?

7/7 Witness: Bus Was Diverted To Tavistock Sq. By Two Unmarked ...
mrgneiss's picture

I heard that JPM has offered to "hold" the confiscated silver.

Muddy1's picture

JPM BITCHEZ,  they'll melt it and make little bars to help cover their shorts.

Don't forget, it's Chase JPM, bury the bitchez

apberusdisvet's picture

Going forward, methinks the correctr economic term for what we face is "hyperstagflation", negative growth and incrementally increasing prices for necessities.

Pimp Juice's picture

I'm not very smart so I have developed a color coded formula:

When green turns to red buy yellow and gray.

DutchSucker's picture

According to the Yajweh tapes (indeed, its the Yahweh from the old testament :-)) the USA had transported their gold to France just before WW1. Thats why USA was somewhat involved with WW1. Hitler knew USA had gold in France during WW2.

 

Now I suggest Ron Paul gets his way and inspect Ford Knox.

 

Be suprised!

MFL8240's picture

There is proof that all of the Gold in Fort Knox was leased to foreign countries by Billie Blue Skirt and Robert Rubin.  There is no Gold at Ft Knox and anyone who thinks there is is crazy.  Ft Knox will never be audited, it would cause a global collapse within minutes.

Muddy1's picture

It wasn't a blue skirt, it was a blue dress with a sequin? (semen) accent from old blu balls hisself

DosZap's picture

Could we get the EFFEN COMMERCIALS off the damn Comment sections?........LOL

The GOLD is stored at FOUR separate locations, Ft Knox, West Point(where most US Mint coins come from), FED RES Bank IN NYC, and I forget the other CLAIMED repository.

FeralSerf's picture

The other claimed repository is "Deep Storage".  It's all there, but not in 400 oz. bars like you might expect.  It's mixed with some dirt and misc. rocks for security purposes.

MFL8240's picture

 

The experiment in equality that propelled an unknown clown to the White House is doing well on all fronts.  Take a look at Libya today, his success has been spread over the economy, foreign affairs and pretty much everything this clown touches.  Needs to go and we cannot wait till 2012; at least Biden has American values.

http://www.washingtontimes.com/news/2011/sep/4/jihadists-plot-to-take-over-libya/

 

But have no fear, the witty hater Maxine (Go to Hell Tea party)  has the answer, a trillion dollar jobs program.  I guess this money will come from the taxes paid by her constituents!  Lol!!

 

http://www.realclearpolitics.com/video/2011/09/04/rep_maxine_waters_calls_for_a_trillion_dollar_jobs_program.html

Muddy1's picture

Maxine's job program = reparation

DosZap's picture

Maxine should be glad her ancestors sold her distant relatives in to slavery, otherwise she would never have been an American,likely never even born, damned sure would not have made it to adulthood, nor would she be a trouble making bitch in power.Between her and Sheila Jackson Lee,I have difficulty figuring which one is batshit crazy, or on permanent PMS cycles.

How's that for reparations?.Thank GOD you were given the chance to be an American(while we still were in a positive mode).

DoChenRollingBearing's picture

+ $1895

MAXINE should be one of the most grateful people in the world!  Where else could she get into Congress and bloviate to hell with no consequences?  And they re-elect her everytime!

She should indeed thank God every day!