What Gold Price Is Telling Us About World Markets

While investors are focusing all of their attention on US banks, another systemic risk is brewing, compliments of the Eurozone and Chinese Banks. Even Swiss banks are sitting on a time bomb, as all of them have lent trillions of Euros to Baltic states, Russia and Latin America. For all intents and purposes, these loans will not be paid back - they will default. Gold pricing is telling us that a huge credit event is looming, and this is not just in the U.S. This is going to be a global credit event. Gold does not lie.

Somewhere in the neighborhood of $11 trillion in Eurozone debt is starting to come due just when companies are strapped for cash and credit markets are frozen shut. Old world European companies are suffocating in debt after their borrowing binge in the last decade. At this level, European corporate debt levels are equal to 95% of GDP. The U.S. is at 50% of GDP.

Bank lending to Eurozone companies fell by 40% as the credit squeeze tightened last fall, resulting in $159 billion in bonds issued in January at punitive rates. This will restrict hiring, wage growth, and investment throughout the Eurozone. The amount of debt to be rolled over is massive and terrifying the smart money.

Because of this, gold is making new all time highs in every currency except the Yen and the US Dollar. Furthermore, gold has been moving in tandem with a declining Euro and rising dollar. This is not a sign of hyperinflation, as stated over and over by the television talking heads. Nor is it a sign of any inflation. This is a big, glowing, neon sign flashing “extreme credit stress”, in nearly every country in the world.

By credit stress, I mean the kind when Nixon took the dollar off gold, or when Humphrey confiscated gold to print money just before the depression kicked in. The rotation into gold is a response to fears that, in a fiat currency world, the printing presses running full steam in all G-10 countries will lead to massive devaluations with nowhere to hide. Therefore, to preserve purchasing power, gold is the only place to hide.

Comments

[Conan the B...:]

Trillions? Could you be more specific in the distribution.

How much to Russia, the rest of the Eastern Block and Latin America.

I would like to try to gauge for myself who is likely to repay.

Thank you.

Feb 18 05:32 AM

[film101:]

it was Herbert Hoover, not HUmphrey.

Feb 18 05:43 AM

[Roger Knights:]

PT: Here's a link to an article by Evans-Pritchard on the situation in Eastern Europe, etc. It doesn't specify the details you want, though:

www.telegraph.co.uk/fi...

Feb 18 07:23 AM

[Steve in Gr...:]

Gold was not confiscated by Herbert Hoover (31st president of the U.S.) or Hubert Humphrey (Lyndon Johnson's VP). Gold was confiscated by that icon of American socialists and Obama's personal hero, Franklin Delano Roosevelt.

"...Franklin D Roosevelt, under Presidential Executive Order number 6102, confiscated all privately held Gold in the United States on April 5, 1933..."

It was practically the first thing that evil man did, once he took power.

Feb 18 10:24 AM

[Steve in Gr...:]

Perhaps the author is referring to the changes made in July 13, 1954 by Eisenhower's Treasury Secretary George Humphrey limiting the numismatic exception to FDR's gold confiscation: “...Gold coin made subsequent to April 5, 1933 is presumed not to be of recognized special value to collectors of rare and unusual coin” and Americans could only own “gold coin having recognized special value to collectors of rare and unusual coin, including all gold coin made prior to April 5, 1933...”

So I suppose there was a Humphrey that confiscated gold coins minted after FDR's original confiscation, but 1954 is a not "before the depression kicked in".

Feb 18 10:41 AM

[ROLEXDAYTONA:]

When something is on the top, the only way is down.

Feb 18 10:55 AM

[Conan the B...:]

Rodger: thanks for the link. It was essentially what I knew before. The Baltics=Latvia, Latin America=Mexico.

The Eastern Bloc is really the problem. But to assume that all loans are equal to Zero is a big leap, even for me.

Now, I can see that Fear of Systemic risks via a Domino effect are certainly there but Austrian support with extensions as needed for the rest can certainly alleviate the Problem.

The Fed did just that by extending European Foreign Credit swaps earlier this month.

Otherwise, Kerplunk.

Feb 18 12:06 PM

[goldis4ever:]

where are the gold-haters nowadays?

Feb 18 03:14 PM

[Conan the B...:]

goldis4: those investment houses which had $1,000 gold as their targets will come out of the woodwork with Valuation Calls.

Not to worry.

Feb 19 12:23 AM