As expected gold bounced yesterday after its recent sharp falls. Gold's lack of correlation with equities (gold has occasional very short term correlation with equities) was seen again as gold and silver were up some 2% while major US indices were down by some 4%.

Citigroup, once the world's largest bank, fell below $1 per share and General Motors is struggling to avoid bankruptcy. Job numbers in the US today are expected to be poor and this should see gold supported today.

Momentum traders and speculative shorts had the upper hand in recent days but gold is now flat for the week and should gold close higher today and for the week we may see an end to the recent downward trend.

Gold may need a period of consolidation before the primary bull market trend is reasserted and the psychological and technical resistance of $1,000 is overcome.

Gold Less than Half Its Inflation Adjusted High in 1980

Prices look increasingly cheap and bargain hunters and value buyers will be increasingly tempted by gold at these levels.

The shadow banking system with its $700 trillion of derivatives is threatening the solvency of all major US investment banks with JP Morgan's huge derivative book increasingly coming under the spotlight.

Central banks and governments are now conducting an unprecedented financial and monetary experiment involving quantitative easing which will likely lead to currency devaluations and severe inflation in the coming months.

By Mark O'Byrne, Executive Director

Gold Investments
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Mark O'Byrne Archive

Comments

Hani Smaik
06 Mar 09, 15:41

Zolar

Gold is the basic standard by which currency is measured. Eventually, No country in the world can back its currency with real gold. We have to dig for more gold and create wars to obtain it. Spot outbreaks of economic distress have taken down one country's currency after another. Is there a fix for the global economy?

When the Money system was invented it was associated with providing a (Cover) for the currency. This system produced a great deal of complexity .Why don't we print a peace of quality paper worth one Zollar!? Why not have a one united global currency that worth the same in every country? We'd avoid currency exchange rates. Excessive liquidly, liquidity clots, inflation and depression.

After different cycles of inflation and depression, eventually countries start to print currency without cover. Iraq did this, Libya did this, the Soviet Union did it, and the United States is doing it now.

So why have a cover for currency in the first place? why can't currency be currency by itself?

print money and distribute a fixed amount of Zolars for each citizens at the beginning of each month! Cancel all other currencies; one Zolar worth one Zolar! Cancel interest and replace it with profit. Make a law that punishes who ever sell one Zolar for more or less than one Zolar. Everyone will become fairly rich or at the least will have sufficient money to attain the basic needs for life. Fear will vanish. People will put their Zolars in banks and pay an amount to the bank as a compensation for storing their Zolars.

Gold will not be needed any more as a cover for money; it will get back to its real value, just a simple metal used in industry, weddings and fashion!

Nadeem_Walayat
06 Mar 09, 17:27

Zolar Fiat currency

The zolar would still be a fiat currency as its value would be determined by the supply i.e. amount printed against what it would be used to purchase goods and services.

I.e. if you produce 1000 tons of wheat then you can't make more wheat by printing more zolars, thus the value of the zolar would fall and hence rise in the price of goods.

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