Gold buyer: Don't worry, be happy
What a beautiful city! We鈥檙e talking about London. It was all dressed up for Christmas last night. And we got to see quite a bit of it. Student protestors blocked the streets around Trafalgar Square鈥nd there was so much snow and ice鈥axis must have stayed home. We walked from Mayfair to Southwark, using one of the pedestrian bridges to get over the river.
It was snowing 鈥� large flakes floated down and settled on the sidewalks. There were Christmas trees and toys in the shop windows鈥long with the usual fashions, paintings and jewelry. People gathered in warm pubs and cafes to escape the cold; they looked so inviting, we wanted to stop in each one and have a drink. The Royal Festival Hall was brightly lit up鈥s were all the major buildings along the Thames.
We鈥檝e never seen it so lovely. Too bad we鈥檙e leaving town this morning鈥n our way to Mumbai (aka Bombay.)
Uh oh鈥� What鈥檚 this? Gatwick Airport is closed. Our flight is delayed. Well鈥ore time to reckon!
But what are we reckoning with鈥h yes鈥oney. Alas, the world of money looks much less attractive than the world outside our snow-bound window. In fact, it is downright ugly.
The stock market seems to be rolling over. Yesterday, the Dow fell 46 points, not enough to make much of a difference.
Gold rose $18.
Here鈥檚 what we see 鈥� Big Risks/Little Rewards. That is probably what gold market buyers see too.
You鈥檇 expect gold to rise when there is consumer price inflation. And there is quite a bit of it. But not in the US鈥or in most of the developed countries.
Maybe some people are buying gold to protect themselves from inflation, but it looks to us as though they are buying it for another reason 鈥� because they are fearful that something is going to go wrong.
Right now, world financial authorities have a number of balls in the air 鈥� China鈥檚 property bubble鈥ts excess capital investment鈥ts rising inflation; Europe鈥檚 collapsing bank debt鈥he euro鈥overnment funding problems; America鈥檚 continued housing decline鈥igh unemployment鈥verpriced stocks and bonds鈥�Ben Bernanke and QE2.
Gold market investors are betting that the authorities are going to drop one of these balls. Maybe more.
Remember, these are the same klutzes who saw no trouble coming鈥nd then misunderstood it when it arrived鈥nd made things worse.
And in Europe alone, they will need more than two hands. Here鈥檚 the latest from the Telegraph:
Contagion strikes Italy as Ireland bailout fails to calm markets
Spreads on Italian and Belgian bonds jumped to a post-EMU high as the sell-off moved beyond the battered trio of Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic. It was the worst single day in Mediterranean markets since the launch of monetary union.
The euro fell sharply to a two-month low of 鈧�1.3064 against the dollar, while bourses slid across the world. The FTSE 100 fell almost 118 points to 5,550, while the Dow was off 120 points in early trading.
鈥淭he crisis is intensifying and worsening,鈥� said Nick Matthews, a credit expert at RBS. 鈥淏ond purchases by the European Central Bank are the only anti-contagion weapon left. It needs to act much more aggressively.鈥�
Meanwhile, in Ireland, the public mood is turning as dark as December.
Irish voters are threatening to turn away the rescue boats and instead throw the bankers overboard. The Telegraph report continues:
One poll suggested a majority of Irish voters favour default on Ireland鈥檚 bank debt. Popular fury raises the 鈥減olitical risk鈥� that a new government elected next year will turn its back on the deal.
Premier Brian Cowen said there was no other option. 鈥淲e are not an irresponsible country, 鈥� he said, adding that Brussels had squashed any idea of haircuts on senior debt. Irish ministers say privately that Ireland is being forced to hold the line to prevent a pan-European bank run.
There is bitterness over the EU-IMF loan rate of 5.8pc, which may be too high to allow Ireland to claw its way out of a debt trap. Interest payments will reach a quarter of total revenues by 2014. Moody鈥檚 says the average trigger for default in recent history worldwide has been 22pc.
If Ireland shirks its debt load, others will too. And then, the euro will collapse. (It fell below $1.30 yesterday.) And if the euro goes鈥o does world trade. And if world trade collapses so do the US stock market and the US economy.
And remember, that鈥檚 just one of the risks. There are more.
So what should you do?
Easy. Buy gold on dips. Sell stocks on rallies. Don鈥檛 worry. Be happy.
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