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"The path of the dollar is unsustainable and therefore the dollar will not be sustained. In time the dollar will join a crowd of multiple reserve currencies, be subordinated to SDRs, be rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities." - James Rickards, Currency Wars.

According to the World Gold Council, the conclusion arrived in a wide-ranging analysis of the world monetary system by OMFIF, the Official Monetary and Financial Institutions Forum, formed around a core of public sector asset and reserve holders at the heart of world finance was as follows:

Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds.

Beijing has eased restrictions on the Chinese renminbi. It appears that demand for gold is likely to rise as a result of China's position as an economic power and its long-term objective to emerge the Chinese renminbi as a genuine currency.

The total expected amount of China's gold imports is said to rival those of the Western Central Banks of approximately 500 tons in 2012,

China Gold Imports From Hong Kong Explode In November 2012

Net imports were 62 tons in November 2012, up from 24 tons in October 2012. That's 62/91 = 68% of gold that China bought, excluding gold going from China back to Hong Kong. That's an increase from the previous month October 2012 where the percentage was only 50%.

Japan's new Prime Minister Shinzo Abe's cabinet on Friday approved a fresh stimulus package that includes ¥10.3 trillion ($116 billion) in fresh spending and is aimed at boosting economic growth by 2%.

"Abe's economic and monetary policies clearly gives the currency market a signal that Japan's current strategies are long-term inflationary and potentially devastating to its national debt already running at record levels," said Steve Roy, Chief Technical Analyst with Equity Management Academy.

Tokyo would be dependent on foreign investors and would probably have to pay higher interest for its gigantic national debt of more than 200% of GDP. See: Yen stabilizes after testing June '10 dollar level.

"If the world wide currency devaluation race persists, gold is likely to remain in demand as an alternative currency, and I expect Japan to join the race by increasing their gold reserves currently running around 845 tonnes, in comparison to the U.S. reserves of 8,965 tonnes," said Roy.

We therefore believe that the recent weakness in the gold price will not be lasting. My long-term analysis indicates current levels offer the best gold setup for the bulls, specially for silver in 2013.

By the end of 2013, Chinese central banks probably will have purchased more gold than last year's ECB record pace of 457 tons, paced by emerging market buyers like Russia, India, and Turkey. Read more about central banks' demand for gold.

The euro jumped Thursday to a level last seen in September after European Central Bank President Mario Draghi said no one suggested a cut in interest rates. Read: Dollar drops most since September after ECB.

Conclusion

With the world debt to GDP ratio running at record levels, it is unlikely that sovereign governments and central planners will stop monetizing their own debt. There are very few buyers left available that are willing to take the risk in this zero base or deflationary interest rate environment.

The risk is far greater if interest rates rise as it could ignite a ferocious hyperinflationary spike and explode the world debt and costs exponentially to GDP levels never before imagined possible, thus igniting an explosive move in gold and silver prices.

With much political rhetoric on both sides of the continent, It appears the euro has temporarily discounted the worst case scenario is behind us regarding the eurozone by successfully kicking the can down the road - or are we setting up for the inevitable - the beginning of a currency war?

Let's take a look at the technical picture for gold and silver and see what trading opportunities lie ahead for the coming week.

Gold

The February electronic gold contract closed at 1664. The market closing below the 50 day MA is confirmation that the trend momentum is bearish. With the market closing above the VC Weekly Price Momentum Indicator of 1662, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the 1681 and 1698 levels during the week. Buy corrections at the 1645 to 1626 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1626 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Silver

The March electronic silver contract closed at 30.49. The market closing below the 50 day MA is confirmation that the trend momentum is bearish. With the market closing above the VC Weekly Price Momentum Indicator of 30.43, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the 31.00 31.52 levels during the week. Buy corrections at the 29.92 and 29.34 levels to cover shorts and go long on a weekly reversal stop. If long, use the 29.34 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

Source: What's Next... Currency Wars?