The gold market has spoken – so much for removing the “cloud of uncertainty over our economy.”
Posted by Adam King on August 05, 2011
Get to the exit now or be trampled in the stampede.
August 05, 2011 – The gold market has spoken – so much for removing the “cloud of uncertainty over our economy.” Investors apparently are having no difficulty seeing through The Deal and they are heading for the hills. And there’s gold in them thar hills.
Let’s return to those thrilling days of yesteryear when the government intervened only with minimal measures designed to stimulate sectors and allowed individual corporations to live and die by their own competence. Now imagine our government as one such corporation. Would anybody in their right mind give that company a AAA credit rating? Would anyone even consider investing in it?
Back to today. The rest of the world is looking at us in just that way. Even a downgrade from roadside service to a 12-step program is hardly sufficient, but they don’t need a rating to tell them this investment has gone perilously sour. The problem is they awoke to the danger far too late.
Our biggest creditors did see the warning signs, however. For over a decade they have been feverishly working to quietly substitute hard assets – any assets they could lay their hands on – for their reserves of US debt. But they grievously underestimated how fast we were headed downhill. Now they are in a real pickle.
On the one hand their investments are losing value at an alarming rate. On the other, dumping their holdings too quickly could trigger an economic calamity such as the world has never seen before. It is a lose-lose conundrum of the highest order and the action they take depends solely on which will have the least damaging and shortest lived effects.
Put yourself in their shoes. What would you do? Clearly you would want to be properly compensated for the high risk of holding that debt. If the government won’t raise interest rates, then you would demand a credit downgrade to force that to happen. Barring that you would have no choice but to cut your losses and run.
Either way you would head for the nearest exit, and right now the only exit is the gold market. It would be wise to get to the exit now before you get trampled in the stampede.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
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US Gold Market
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