Gold and silver were lower yesterday morning as the recent bout of weakness continues. Equities in Asia were lower on economic growth and inflation concerns and European indices are also lower as Greek debt talks are in disarray after the weekend arrest IMF's Dominique Strauss-Kahn.
There are concerns that the IMF's chief's arrest may delay resolution of Europe's deepening debt crisis and Greek bonds have fallen again seeing the 10 year yield rise to 15.58% - close to the record highs seen last week.
Oil prices are lower again on growth concerns despite a significant increase in tensions in the Middle East with clashes on Israel's borders with Syria, Lebanon and Egypt.
Gold is likely to find support from geopolitical risk emanating from the tinderbox that is the Middle East.
Gold and silver's fundamentals remain very sound and yet the majority of the western public remain unaware of the fundamentals and unaware of the significant macroeconomic, monetary and geopolitical risk facing them today.
Tensions in the Middle East and North Africa, concerns that Japan is on the verge of a severe recession (due to its earthquake, tsunami and its worsening nuclear catastrophe), risk of sovereign debt contagion in Europe and the U.S. (the U.S. reached its $14.3 trillion debt ceiling yesterday) and ultra loose monetary policies, currency debasement and inflation are contributing to continuing safe haven demand.
This is especially the case in China and India where strong demand has continued after the recent sell off and where demand continues to surprise analysts and market participants.
The Financial Times reported on Saturday that "the sharp drop in gold and silver prices has stimulated a surge in buying from India in a sign that consumers in the world's largest gold-buying country retain faith in the decade-long bull story for precious metals."
Chhabil Jain, a Mumbai silver trader told the Financial Times that "demand for silver bars was going through the roof" and that "many vendors were starting to run low on stocks."
"People are booking incredible amounts of silver as they see the current drop in prices as a great opportunity to buy more ... most are buying for pure investment," he added.
Bloomberg reports this morning that silver was the most traded commodity in April.
Incredibly, the value of trading in silver futures in India was four-times greater than gold. Trading of silver futures on the Multi Commodity Exchange gained more than sevenfold to 4.1 trillion rupees in the April 16-30 period from a year earlier, regulators' data showed.
Indians unlike their western counterparts still silver as an important store of value to protect against the declining purchasing power of paper currencies.
U.S. Debt Ceiling of $14.3 Trillion Reached
While the media focuses on the weekend arrest IMF's Dominique Strauss-Kahn, a more fundamental and important story is that of America's debt ceiling of $14.3 trillion debt ceiling, which was reached yesterday. America's budget deficit this year alone is set to be a record breaking $1.5 trillion.
These figures and America's appalling fiscal state means that gold and silver remain important diversifications.
Should the U.S. Congress fail to vote to increase the debt limit this week, the White House has warned that the country would default on its debt and spark a new financial crisis.
The U.S. Treasury has threatened to implement "extraordinary measures" so America can keep paying its bills until August.
Federal Reserve Chairman Ben Bernanke told Congress last week that any delay in increasing the debt limit would result in higher interest rates and could have "extremely dire consequences for the U.S. economy".
The reality is that the continuing imprudent and profligate fiscal and monetary policies in the U.S. are likely to lead to higher interest rates and have "extremely dire consequences for the U.S. economy."
Recent and continuing unsustainable fiscal and monetary policy have led to safe haven demand for gold and silver and the continuation of the bull markets in the precious metals.
Until, fiscal and monetary discipline and sanity returns to America and the world, gold and silver will continue to be bought in order to hedge the continuing debasement of fiat currencies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.