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Gold Consolidates Recent Gainsby Peter A. Grant
May 06, AM 
Gold is consolidating after posting two consecutive weeks of gains. The yellow metal remains confined to Friday's range thus far as the battle between paper sellers and physical buyers continues to play out.Continued soft PMI data and a weak retail sales print out of Europe is just the latest evidence that the eurozone remains in trouble. The euro is under pressure, which has lifted the dollar and is keeping gold in check. However, as the EU founders, it's worth remembering that gold was trading just above $1,000 an ounce when the euozone debt crisis commenced in October 2009 with the announcement by Greek Finance Minister George Papaconstantinou that his country's deficit would be twice previous estimates. In the intervening years, the U.S. has managed to keep its economy sputtering along just above stall speed with rates at zero and by pumping trillions in liquidity into the system. Europe has been reluctant to follow suit, although last weeks 25bp cut in the refi rate to a record low 0.5% may be the first crack in the bulwark we've seen in some time. I think part of the reason that gold has been more corrective in recent years is the broad perception that global central banks have been effective in managing the string of crises that have emerged in recent years, averting economic catastrophe. While a full-on catastrophe has has not happened (yet), anyone who assumes the risk of catastrophe is behind us, does so at their own peril. Mounting growth risks will bring debt and funding crises back to the fore as tax revenues fall once again. This will likely force central banks to ease further. The ECB and the BoE have room for further rate cuts, but in the U.S. and Japan rates are already at zero. Their only option is print even more than they are already doing. Japan has already gone 'all-in', pledging to double their monetary base within the next two years. Yet the latest CPI print shows prices are falling at an increasing rate, -0.9% y/y in March, versus -0.6% y/y in Feb. The BoJ has set out to try and change the mindset and culture of the nation; from a country of savers to a country of spenders. This is no small task, and I think the Abe government and the BoJ realize it, but even the 'shock and awe' of Abenomics may prove insufficient. The Fed suggested last week that they are just as ready to increase asset purchases as reduce them, depending on how the economy is doing. For now anyway, the removal of accommodations seems a long way off. What's worrisome is the prospect that the inability of central banks to create economic growth and inflation will incent them to push that much harder. Like the door that finally gives way after you throw all your weight behind it, the risk is that all that liquidity comes charging into the room. We know from history that the velocity of money can be unpredictable. When that "bang" moment occurs, all those crises dodged in the past may seem like mere child's play in light of what is ultimately unleashed on the global economy. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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