Monday, April 2, 2012

The Central Bank Put Option

Jim Grant: ‘gold price is the reciprocal of faith in central banks’


Gold coins Up, down, and back up again: that about sums up the action in the gold and silver markets last week, though neither bulls nor bears were strong enough to move the gold price out of its trading range between $1,650-$1,680. Likewise, the silver price continues to trade in a range from $31-$33.
The indecisiveness in the metals is mirroring broader market ambiguities. German unemployment is now at a record post-reunification low, yet it’s been reported this morning that total eurozone unemployment stands at a 25-year high of 10.8%. In Italy, unemployment rose from 9.1% to 9.3% January to February – its highest level since 2004. The division between the German “core” and the Med countries (plus Ireland) grows ever wider.
New Chinese manufacturing data had cheered investors earlier today (production up for the fourth straight month) but that was before the eurozone unemployment data was released. European exchanges are down slightly and crude oil prices have taken a hit – though both WTI and Brent remain above the lows they reached last Thursday.
As for America, Barry Ritholtz posts good comment on Wall Street’s love of easy money, noting the combination of “extraordinary skills and stupendous luck” that it will take to return monetary policy “to some semblance of normalcy”. The humorous and informative James Grant remains just as sceptical, noting in the CNBC video below that “gold has more upside” because of these difficulties. Click on this link to watch James Grant discuss gold, the Fed and the US economy with James Turk.

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