The Daily Market Report: Gold Corrects as Euro Drops on Threat of Further QE
19-May (USAGOLD) — Gold was initially holding up pretty well in the face of a sharp dollar rebound this morning. However, when U.S. housing starts beat expectations by a wide margin, the yellow metal extended the pullback, as markets were quick to celebrate a little bright-spot in what has otherwise been a series of misses.
Those dollar gains were actually more the result of euro weakness: The euro came under heavy pressure today amid comments that the ECB planed to accelerate its bond purchases in May and June. Christian Noyer added that the central bank may in fact extend its QE program in order to achieve its inflation target.
These comments strike me as yet another salvo in the currency war. The ECB is apparently not content to sit back and watch the euro retrace the losses achieved since the first began threatening QE about a year ago. The message: There’s more where that came from!
As a result, the euro was off more than 1% against the dollar before the U.S. housing data even came out. Those euro losses mounted when the dollar got a boost from a 20.2% housing starts surge in April.
The firmer dollar weighed on gold, but after five consecutive higher closes, the yellow metal was probably overdue for a pullback. At this point, the market seems to have found support ahead of the $1200 level.
There has been much talk recently about the McKinsey & Co report on global debt. The report shows that global debt is now approaching $200 trillion; closing in on 300% of global GDP. The world has added $57 trillion in additional debt in the last 8-years since the financial crisis nearly caused a total meltdown of the global economy.
Basically, the world has clawed its way back to mediocre on the back of massive additional debt. Unless there’s a substantive turnaround in growth prospects, which is looking increasingly less likely, I see two options for governments and policymakers: They can let economies reset, which would result in another devastating recession, or worse. The alternative is to continue borrowing prosperity from the future.
The latter is the path we were on presently and I fear it is the path of least resistance. Policymakers will look to forestall the next economic disaster as long as possible, hoping that if it has to happen, it happens on somebody else’s watch. In adding to the already massive pile of debt, the only way to service that debt is to continue to debase one’s currency.
In light of this grim reality, it behooves you to take appropriate defensive measures to preserve your wealth. The safest of the safe-haven assets is of course gold, in physical form, in your possession.
