Gold falls as Greek impasse prompts risk-off

In the Lead: “Crisis Mis-Management”

Background metrics offered a mostly red-tinged price list in base metals (copper down 1%, along with aluminium and lead losing over 0.50%) and in crude oil (off by 0.60% at $98.40 a barrel). The euro slipped to $1.295 against the greenback following a hefty rise in Portuguese debt insurance premiums and the yen fell to a two-month low against the American currency in the wake of that country’s first trade deficit to be reported since 1980.

As far as the European situation goes, there are still variables remaining to be worked out (the size of the so-called ‘haircuts’ that bondholders might take on Greek debt, the ratings game involving various European financial institutions as well as sovereign debt, etc.) but there is at least one school of thought that envisions a collapse of the Greek economy, no matter what happens in the broader sense.

According to Steve Hanke of Johns Hopkins University, the “game” –for Greece- is “completely over.”

Mr. Hanke cites the 16% shrinkage in that country’s money supply as the fuse that will light the implosion. In separate news, the IMF projects a slowing in global economic growth and it has warned of the spillover effects of the European debt crisis on the same. Global growth for 2012 is now anticipated to come in at the 3.3% level as against a previous (Sep. 2011) forecast calling for a 4% rate of expansion.

Meanwhile, more than 70 of the world’s billionaires are huddled in “Camp Igloo” –their snow-laden hideout in Davos, Switzerland, trying to pay more than just lip service to the vexing issue of income inequality. This is now taking place in the wake of the 2011 “Arab Spring” and the “Occupy Everything” movements that have certainly rattled their nerves, of nothing else.

Some see this year’s summit as an attempt to “remodel” capitalism. Good luck with that, we say. Behold the school of thought that sees the rise of modern (American) capitalism as having its roots in…slavery. Yet, then, as now, “A major financial crisis in 1837 revealed the interdependence of cotton planters, manufacturers and investors, and their collective dependence on the labor of slaves. Leveraged cotton -- pledged but not yet picked -- led overseers to whip their slaves to pick more, and prodded auctioneers to liquidate slave families to cover the debts of the overextended.”

Substitute those cotton planters with, say, today’s oil producers and the slave families of 1837 with today’s “99%” and you have the beginnings of a present-day picture of a similar “interdependence.” Little wonder then, that capitalism is seen as being in crisis by so many (one of them being Prof. Richard Wolff of UMass/Amherst). How this crisis will be managed will dictate the essence of many a yet-to-be-written page in the history books. Disturbingly however, “U.S. investors are not convinced that income inequality is a threat to the economy: a majority of those surveyed say it does not hinder growth. More than 50 percent of Europeans and 60 percent of Asians think otherwise.” reports Bloomberg News in its latest article on the issue.

To wit, the GOP’s Mitch Daniels in his State of the Union rebuttal speech- a classic case of fear-mongering-laden rhetoric- identified President Obama as being “pro-poverty” (???) instead of focusing on the income inequalities that prompted said President to call for higher taxes on the…rich. In his State of the Union address last night, Obama called on Congress to embrace a tax plan named for billionaire Warren Buffett that would require those making $1 million or more pay at least 30 percent in taxes. With congressional gridlock heightened by the 2012 election, there is little chance the proposal will pass,” reports Bloomberg News.

Until tomorrow,

Jon Nadler is a Senior Metals Analyst at Kitco Metals

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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