This Month in Gold – September 2011

JPM Eyes Gold at $2,500 by December
Financial Post – Prior to Standard & Poor’s downgrade of US sovereign debt, JP Morgan analysts expected gold to stay at or below the $1,800 an ounce level in 2011. Post-bombshell, however, that projection has been revised upward to $2,500. Analysts Colin Fenton and Jonah Waxman are encouraging their clients to buy commodities with an Asia, production, and inflation bias, and are counseling them to eschew those with a strong US or consumption link. Despite near-term headwinds for commodities as a consequence of global growth scares, the analysts foresee emerging market demand coming out of the dip with noticeably greater vigor.
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Chavez Recalls Venezuela’s Gold
Bloomberg – Venezuelan President Hugo Chavez, ever the contrarian, is moving sooner rather than later. Predicting (and surely hoping to expedite) the demise of the US dollar system, President Chavez this month issued orders to his government to repatriate the country’s $11 billion in gold reserves sitting abroad. He also said he will nationalize the country’s gold industry to “halt illegal mining and bolster reserves.” What to do with the bullion once it’s back home? Why, invest in emerging markets, of course. President Chavez is urging the Venezuelan central bank to diversify its international reserves – of which gold comprises approximately 60 percent – away from US institutions.
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The Nixon Shock
Bloomberg Businessweek – The year is 1971, and rather than disappoint the electorate with a recession and risk losing re-election, President Richard Nixon delinks the US dollar from gold, encourages money printing to paper over his problems, and thereby introduces the complex, volatile financial era of the present. In an informative, five-page investigative piece, Roger Lowenstein chronicles the issues and personalities surrounding the closing of the Federal Reserve’s gold window. “[Bankers] have become ever more apt to please politicians, deferring recessions at the risk of inflating asset bubbles… We see it now in the troubles of nations from Greece to Ireland to the U.S…This is Ben Bernanke’s unfortunate inheritance.”
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