Gold reaffirms recent correlation to euro

In the Lead: “Nothing Newt Under The Sun”

The euro had a hesitant start in the new trading week that opened over in Asia overnight as private creditors had failed to come up with a firm agreement with Greece on a debt swap deal. However, the initial wobbliness in the common currency soon dissipated and made room for optimism and the rekindling of the ‘risk-on’ sentiment that, by this morning, had it trading at a near three-week high at the $1.30 level against the dollar.

Such an elevated mood brought about some gains in the precious and the base metals spaces this morning. Of course, crude oil was also assisted in notching a better than 1% gain by the EU decision to ban Iranian oil imports as of July. The announcement was greeted with more threatening posturing by the recipient of the proposed ban.

Gold prices had traded as high as $1,678 overnight, but they opened nearer to the $1,670 level – one above which current resistance barriers are still found. The yellow metal has reaffirmed its recent correlation to the euro once again and it does manifest the potential for an extension of its recent upward correction to the $1,700 and just above area.

Much of the strength and longevity of the push toward those higher figures will therefore depend on the flavor of the news coming out of Europe over the next week or so. Private creditors who are about to take some fresh ‘hairstyling’ sessions in connection with the Greek debt they own, have said that they have reached the end of their road insofar as how much they are willing to have taken ‘off the top’ and have passed the proverbial ball over into the decision courts of the EU and the IMF.

Speaking of the IMF, its head, Ms. Lagarde, speaking just ahead of the Davos meeting of the World Economic Forum this week, noted that the world’s economy could experience what she called a “1930s moment” (some “Kodak moment” that would be at this juncture!) if the European debt crisis is not truly tackled. A major collapse in global demand (and of course huge asset liquidations as well) could ensue if various nations continue to fritter away the opportunity to properly address certain problems. Ms. Lagarde’s institution is set to release its projections for global economic growth tomorrow.

Ms. Lagarde also reaffirmed the need for an expanded lending capacity by the IMF and thus the quest for half a trillion dollars to bolster the fund’s coffers is thus actively on. On the other hand, there might not be too many problems to take note of as regards the US economy when the country’s latest quarterly GDP report comes out this week. Estimates are that America’s economy expanded at an annualized 3% rate in the final trimester of 2011. We shall know specifics this Friday.

Whether or not the Fed will choose to ‘stay the course’ in the wake of the GDP release’s metrics remains to be seen. For the moment, the “Bernanke program” to tackle price stability and employment levels simultaneously (derided by many as “disastrous”) has shown that the US central bank has actually been able to circumvent “a catastrophe.” As a result, many former critics of Mr. B. have now come around to acknowledge that the “Big Gamble” taken by the man has panned out, and that the only “economists” still laughing at his policies are now (still) found in the hard money newsletter cottage industry.

Speaking of policies of the monetary kind, would-be US President Newt Gingrich has indicated that he would lean toward creating a committee to study the feasibility of a return to the gold standard by the US. Aside from perhaps having been to too many New Orleans-based hard asset investment conferences, and possibly taking monetary policy advice from certain dollar-morticians (who are thought to still be working for Ron Paul’s campaign), Mr. Gingrich’s golden scheme unfortunately does not turn out to be as good…as gold. Nothing new under the sun here; we have often seen and heard politicians promising the moon and the stars to prospective voters, irrespective of the quasi science-fiction flavor that their visions entail.

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