Daily Nugget: That Bailout And Why This Is Good For Buying Gold

So, not much to discuss today…apart from that bailout, which was, to say the least, a little controversial.

The unfortunate position in which Cypriots now find themselves was not of course unimaginable but by many was one of those ‘but, it’ll never happen.’ The weekend’s events show nothing is impossible when it comes to the banks, particularly central banks and the troika. Agreement of a 10 billion euro loan, to then insist that bank depositors help pay for it, was a sneaky move but no one you could have ever dismissed. Can we even argue anymore that the Eurozone is a civilised environment?

As a result the Euro fell to its lowest for the year.

More look to buy gold
As the markets opened gold popped up over $1,600 and there it remains. It hit a monthly high of $1.608.80 before comfortably sitting at around $1,604. Whilst I would like to say a massive ‘I told you so’ to all of those claiming that gold’s time had come due to the economic recovery, I won’t as you never learn anyway. Cyprus, one of many events this year, will sit in people’s minds over the risks facing their money and increasing numbers will be looking for safe havens and start buying gold.

Gold’s rise above $1,600 saw it overtake platinum – for the second time this year. Bloomberg reports that one ounce of platinum would buy ‘as little as 0.9835 ounce of gold today, the least since Jan. 14.’

What we can learn from the Cyprus bailout, and the fall in our own currency is that savers are no longer respected. Instead they are treated like the parents of a drug-addict whom they love dearly. They know they should stop funding the child’s heroin addiction, but they can’t stop the child from stealing money from them. The drug-addict has one aim – to feed his addiction, like the governments have one aim – to keep the charade going. Like the drug addict they can only do this by stealing from those who have worked hardest to do the right thing.

As Allister Heath wrote today, ‘If you are a big EU country, you will be protected; if you are a small one, you will be bullied.’ Despite this we wouldn’t be surprised if we see a small run on the banks in another Euro country, namely Italy which has no government, or Spain which is in political turmoil or Greece which is unable to manage its own bailout.

Banks back on gold investment
HSBC have said this morning that they ‘remain bullish on gold’ as they see no let-up in QE and no real recovery on its way.

Elsewhere, Merrill-Lynch has developed a model which shows that over time investors will play less of a role in gold’s price moves. They believe demand from emerging, affluent countries who wish to buy jewellery will help keep the price above $2,000, even if investment demand remains at 2008 levels.

The week ahead

This week’s key event, aside from the vote in Cyprus tomorrow, is the Fed’s FOMC 2-day meeting which commences on Tuesday.

The FOMC reportedly remain divided on the issue over whether or not less, the same or more QE is required. No change is expected. Improved economic data contuse to inflate the egos of central bankers; however the brewing Eurozone crisis will give come cause for concern.

Fridays Consumer Price Index in the US came in higher than expected at 0.7%, many analysts are suggesting hanging onto gold as inflation is likely to kick in later in the year.

This week is a busy one here in the UK. As well as the release of the MPC minutes, data on government borrowing, inflation, labour and retail sales will also be released. And then, of course, the budget. Chancellor George Osborne, who has seen approval ratings hit new lows, is expected to continue his austerity push and resist tax cuts for businesses.

MPC minutes are expected to show a close vote which resulted in a ‘no’ vote for further QE. We suspect they were pushed towards no QE given the pound’s reaction last month.

Over the coming, hours and days expect to see further discussions as to how depositors can keep their money safe. Even if you suspect you’re government is unlikely to life cash straight from your account you’re thinking too practically, the fact is they do every day through currency depreciation. To see more on this check out our new infographic on gold and currency wars.

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