This Month in Gold – February 2011

Utah Could Use Gold, Silver Under Sound Money Act
New American – The Utah State Legislature is considering a bill that would require the state government to accept taxes and pay obligations in gold or silver upon demand. The “Sound Money Act” cites the US Constitution’s requirement that “no state shall make anything but gold and silver a tender in payment of debts.” That clause has never been repealed, though it was ignored by the courts as the US was gradually taken off the gold standard. This groundbreaking piece of legislation (and fantastic promotional video) could be the start of a movement among the states to return to Constitutional money. Among the coins Utah would accept are: American Gold Eagles, Australian Kangaroos, Canadian Maple Leafs, and South African Krugerrands.
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Emerging Markets Feeling the Heat of High Inflation Rates
Economic Times – Emerging markets are struggling under the burden of inflation ‘exported’ from the US. As the Fed prints hundreds of billions of new dollars, export-based economies feel pressured to print an equivalent amount of their local currency to keep their manufacturers from being choked off from the developed markets. The BRIC bloc (Brazil, Russia, India, and China) are all hiking interest rates to try to contain the flood of dollars pouring in, but the Fed’s inflation is too much, too fast. As a result of strengthening currencies abroad, the Economic Times expects rising prices in “commodities such as gold, silver, crude oil, and various other metals.”
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Are Investors Becoming Too Bearish on Gold?
Minyanville – January saw investors selling gold bullion and mining shares, but the metal is starting to look oversold. Much of the correction is due to recent rate hikes in emerging markets, leading some to believe the threat of inflation is waning. However, Euro Pacific Precious Metals’ own Chief Economist Michael Pento notes that real interest rates are set to be negative for some time, which historically drives the gold price up. It is noted that since so many gold market timers are quick to sell on even potentially bearish news, the gold market is probably far from the euphoria which characterizes a bubble. Also noted is how many traders are shorting gold, which “makes it a virtual certainty that at whatever price point a reversal eventually occurs, it will be a violent one.” That means a fast leap upward may be due in February. Mr. Pento maintains a price target of $1,600/oz by the end of 2011.
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Gold Standard Fully Supported By… Alan Greenspan!?
Zero Hedge – Joining a chorus that now includes the President of the World Bank and the President of the Kansas City Fed, former Fed Chairman Alan Greenspan has publicly voiced his support for a return to the gold standard. Mr. Greenspan, credited by many with planting the seeds for the current dollar crisis, conceded on Fox Business Network that “some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that, all of history suggests that inflation will take hold.” The re-indexing required to create a new gold standard from the remaining US stockpile would yield a gold price of $6,300/oz.
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