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Money is Being Printed in Europe. A Good Time to Buy Gold?

December 26th, 2011 No comments

Yes—it’s that bad in Europe. While European leaders continue to attend meetings and argue about how to solve the Euro crisis, here’s what’s actually happening in Greece, according to German magazine Spiegel.

Many Greek residents are having to use their savings to pay routine bills because the economy there is so terrible; they are also facing rising taxes and financial uncertainty. As a direct result, Greek banks are having to reduce their lending—thus worsening the recession in that country. Money in Greek savings accounts has decreased 30% in two years. And it’s a situation that could happen soon in Spain and Italy.

Financial and political leaders in Europe are seriously starting to consider printing money as one way to get out of the crisis. This would start once Italy, Spain, and other countries adopt austerity measures. While this will provide some much needed liquidity, it also poses the threat of inflation. And when there’s a serious threat of inflation, then it’s a good time to buy gold. Historically, gold has been one of the most effective ways to protect savings from inflation.

And there’s absolutely no guarantee that printing money will solve the crisis.

“When there’s concerted action by central banks, it’s definitely good,” Jens Sondergaard, senior European economist at Nomura International told Bloomberg. “But are liquidity injections a game changer when the heart of the problem is in European sovereign debt markets?”

A further problem on the horizon is the potential downgrading of credit ratings for 15 out of the 17 Eurozone countries.

“We are therefore also placing the ‘AAA’ long-term rating on the EU on CreditWatch negative,” announced credit rating agency Standard and Poor’s.

And it’s understandable. Italy is precariously close to defaulting on its debt of 1.9 trillion Euros. If even one of the current Eurozone countries decides to stop using the Euro, this decision could create a financial catastrophe by triggering sovereign debt defaults across Europe. The choice is stark. Several European countries will have to accept Greek-style austerity measures or the European Central Bank will have to print Euros.

There’s a reason the United States is extremely worried about the Eurozone crisis: many U.S. banks guaranteed European sovereign debt; if there’s a default, then the U.S. government would have to bail out their banks again. To achieve this, the U.S. Federal Reserve would likely have to roll the printing presses and print more money. Again—this significantly raises the threat of inflation.

It’s a mess. And the crisis in Europe is one of the main reasons to buy gold. Right now, it looks like there will be two major problems in Europe: inflation and continued economic uncertainty. Both make buying gold attractive as gold thrives during times of uncertainty and when there’s inflation.

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Gold Forecast. 2012. Tight Supply. Increased Demand. So it’s a Good Time to Buy Gold.

December 19th, 2011 No comments

We’ll take a look at the reasons there will be increased demand for gold in a minute but let’s start by taking a look at some big players in the market. In past blogs, we’ve mentioned that Middle Eastern and Asian countries are big buyers of gold.

  • Qatar has been buying more than a ton of gold every month for three years.
  • Russia recently bought more than 15 tons of gold from its mines.
  • The Reserve Bank of India bought 200 tons of gold the IMF sold.
  • Even tiny Mauritius bought 2 tons of gold in November.
  • And then China plans to buy gold: approximately 6,000 tons in five years.

It’s not easy to find this sheer quantity of gold. The supply of gold remains low. New mines are opening but it takes at least five years for a mine to produce at significant levels. With high demand, low supply, and a volatile global market, there’s a good reason that many commodities analysts are predicting significantly higher gold prices for 2012.

  • UBS has forecast $2,075 an ounce.
  • Barclays has forecast $2,000 an ounce ($35 an ounce for silver).
  • Morgan Stanley predicts a range between $1,819 an ounce and $2,085 an ounce.
  • HSBC predicts $2,025 an ounce.
  • TD Securities predicts $1,975 an ounce.

With the price of gold hovering around the $1,700 an ounce mark for several weeks, it may be a good time to buy gold.

Five Factors Pushing Demand for Gold

  1. The financial crisis in Europe over the Eurozone—which looks increasingly likely to lead to printing money…and inflation.
  2. Central banks are buying gold as they move away from the dollar.
  3. There’s strong demand for gold for jewellery in China, India, and the Middle East.
  4. Institutional investors may start buying gold—especially if global equity markets remain stagnant.
  5. The spectre of inflation—not just in Europe but all over the world.

With gold prices at approximately $200 an ounce below the high in September and many major financial institutions predicting prices over $2,000 an ounce in 2012, now could be a good time to buy gold.

In the short term, it will be extremely important for people who are considering buying gold to pay close attention to the news coming out of Europe.

“We expect gold prices to increase because of fear of a Eurozone implosion,” said Dennis Hynes, chief market strategist at R.W. Pressprich, told Bloomberg. “The only currency that’s stable in this type of situation is gold.”