Gold Pushes Higher, Underpinned by Political Unrest and Oil

by Peter A. Grant

February 23, a.m.
(from USAGOLD.com) --

Gold and silver remain well bid as oil prices surged amid reports that Libyan strongman Muammar Gaddafi planned to sabotage the countries oil facilities and pipelines. The pipelines in question primarily serve Europe and the threat to disrupt oil/gas flows is likely in reaction to news that European leaders are considering sanctions against Gaddafi's government for its heavy handed reaction to anti-government protesters. Secondly, it's thought to be a signal to the protesters; Gaddafi is prepared to implement a scorched-earth policy, leaving Libya in shambles if the protesters force their hand.

Here it is Wednesday already and I'm just now getting around to discussing the latest G20 meeting, which was held last week in Paris. G20 meetings have largely become non-events, where leaders get together to acknowledge there are a whole slew of global problems -- broadly referred to as "global imbalances"-- but never seem to get around to actually doing anything about them. The Wall Street Journal said: "Negotiators from the world's leading economies haggled all night over seemingly technical details regarding how to measure global economic imbalances." The crown jewel of the event ended up being a vague 53-word sentence agreeable to all parties, but arguably devoid of any meaning whatsoever.

"While not targets, these indicative guidelines will be used to assess the following indicators: (i) public debt and fiscal deficits; and private savings rate and private debt (ii) and the external imbalance composed of the trade balance and net investment income flows and transfers, taking due consideration of exchange rate, fiscal, monetary and other policies."

French Finance Minister Christine Lagarde said of that particular sentence: "It means what it means what it means, just like a rose is a rose is a rose." Huh? And these are the "leaders" entrusted to pull the global economy back from the precipice? I think we all have reason to be very concerned.

Perhaps the most noteworthy accomplishment of the meeting was China's successful flexing of its relatively new found muscle once again on the global economic stage. The PRC was successful in blocking the inclusion of real exchange rates and currency reserves as key indicators in measuring imbalances. It is the same muscle that consistently keeps China from being labeled a currency manipulator by the US Treasury Department. They hold a boatload of US debt and recently released diplomatic cables clearly show that they aren't afraid to use that leverage against us. It would seem that Chinese buying of PIIGS debt is already paying dividends as well.

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

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