Gold Surges to New Record Highs

by Peter A. Grant

March 24, a.m.
(from USAGOLD.com) --

Gold has finally pushed to new all-time highs above the early March peak at 1444.60, led by hard-charging silver, which has traded above $38.00. The yellow metal had been fairly well contained for most of the week as silver extended to new 31-year highs. Heightening sovereign debt concerns in Europe, escalating political unrest in Syria and a magnitude 6.8 earthquake which hit Myanmar near its boarder with Thailand and China, have all piled upon existing concerns over Japan and MENA.

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In line with expectations, the Portuguese parliament rejected the latest austerity budget late last night and PM Socrates fulfilled his pledge to resign. While Socrates is attending the EU summit in Brussels as the "caretaker" of the Portuguese government, this latest turn of events leaves the country essentially rudderless in the midst of a major crisis. Expectations are that Portugal will be forced to accept a bailout, like Greece and Ireland before it, which is likely to have further austerity measures attached to it anyway.

Just as eurozone leaders convene with the goal of preventing contagion, the collapse -- and likely bailout -- of Portugal has increased the Spanish risk. The euro continues to hold up well though, underpinned by sovereign demand and safe-haven bids. However, a collapse of the monetary union should not be completely discounted. As Warren Buffett told CNBC, "You can't have three or four or five countries that are in effect free-riding on the other countries. That won't work over time—they have to get their fiscal houses in reasonable harmony."

Political unrest is escalating in Syria as the security forces of President Bashar al-Assad reportedly fired on protesters in the city of Deraa, killing at least 15. This comes as coalition forces aligned against Libyan strongman Muammar Gaddafi executed their most aggressive bombings of the conflict, as rebel forces struggle to regroup. The ongoing, and arguably rising, geopolitical and military tensions in the Middle East and North Africa are expected to keep oil prices elevated for some time to come, creating risks to growth in the heavily energy dependent industrialized world. These risks to growth in turn increase the likelihood that Western central banks will keep their monetary policies loose, despite the simultaneous rise in inflation risks.

Workers in Japan continue their efforts to stabilize the stricken nuclear plant at Fukushima amid concerns about their health and the contamination impact. The Japanese disaster has prompted a global debate about the risks of nuclear power that may leave us even more dependent on increasingly scarce carbon-based fuels. This too will keep upward pressure on oil and gas prices, threatening to derail nascent economic recoveries around the world. Clearly the Japanese economy is exceedingly vulnerable, but so too is the US with a very well defined historical record of recessions being triggered by spikes in energy prices.

Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.

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