Gold and silver succumbed to profit taking (gold down 3.2% and silver
down 2.5%) last week as risk appetite returned to markets with the
tentative recovery in equity markets continuing.
Gold's performance was lackluster, despite
increasingly bullish news with regard to growing acceptance that the
international monetary system must be reformed and the strong
probability that gold will again play a more significant part in the
international monetary system. A UN panel, the Chinese, Indians,
Russians and others are calling for significant monetary reform, and
for the overarching dominance of the US dollar to be replaced by a
multipolar currency world, less dependent on the mighty dollar.
The G20 meeting in London this week will likely
see these demands come centre stage and could lead to strength in the
gold market.
The Russians have now clearly stated their aim to
return to a partial Gold Standard which they believe will return
discipline and stability to the international monetary and financial
system. The world's fiat paper currencies have lacked any anchor since
1971 (when Nixon ended dollar gold convertibility for countries) and
many rightly believe that the financial excesses and extreme debt
leverage of the last quarter century would have been impossible under
the discipline of the Gold Standard or even a partial gold standard.
Russia favours the inclusion of the Chinese yuan,
Russian rouble and gold bullion in the basket-weighting of a new world
currency based on Special Drawing Rights issued by the International
Monetary Fund.
Investment demand is set to remain robust as
savers internationally are punished by miniscule interest rates and
negative real interest rates. Also the failure of the UK government
bond auction and fall in bond prices last week will lead to
understandable concern as to whether government bonds are the safe
haven they are claimed to be.
The UK and US government's bailing out of
sections of Wall Street and the City of London combined with
unprecedented massive money printing and deficit spending will soon be
realised as yet another failed short term panacea that will likely make
the financial crisis worse in the long term.
