This Month in Gold – July 2011

Crisis of Confidence in US Dollar Possible: UN
Financial Post – Ban Ki-Moon has just won a second term as UN Secretary-General. Kudos. The eroding value of his tax-exempt salary denominated in US dollars, however, is less cause for celebration. A mid-year review of the world economy by the UN’s economic division points out that a continued decline in the value of the US dollar vis-Ã -vis a basket of other major currencies could precipitate a crisis of confidence, and possibly a collapse. Such an eventuality would with certainty imperil the global financial system. Rob Vos, a senior economist who contributed to the review, explained to Reuters that the brain trust isn’t arguing that a collapse will happen tomorrow, but that the headwinds are fast compounding, and a point of no return could come sooner rather than later.
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EU Facilitates Use of Gold as Collateral
The Australian – The European Parliament’s Committee on Economic and Monetary Affairs resolved unanimously in late May to permit clearing houses to accept gold as collateral. The decision must still pass muster at the European Parliament and the Council of the EU in July. Nevertheless, the Committee’s harmony of opinion represents a significant shift in political sentiment regarding the utility of gold as a store of value. Since the 2008 financial crisis, investors and financial institutions have clamored for alternative sources of collateral. Traditional collateral assets, such as European government bonds, have seen their credit quality erode.
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Mining Chief Sees $2,000 Gold
The Australian– Richard O’Brien, Chief Executive of the world’s largest gold producer, Newmont Mining, commented on the sidelines of the World Economic Forum on East Asia that the price of gold would likely reach $2,000 within five years. Mr. O’Brien said the newfound wealth generated by China’s growing middle class and a devaluing US dollar would underpin the rise. For 2011, however, he forecast the price would likely remain in the $1,500 to $1,600 bracket. At the very least, the mining chief believes gold will remain above $1,000 an ounce for ‘the foreseeable future,’ no matter the state of global markets.
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Utah Legalizes Gold, Silver Coins as Currency
Denver Post – Utah, the rugged “Beehive State,” became the first US jurisdiction to authorize the use of gold and silver coins as currency in late May. The move exempts the sale of precious metal coins from state capital gains taxes. State lawmakers passed the bill to protest Federal Reserve monetary policy, noting that citizens are losing faith in the dollar and deserve alternatives. A groundswell of gold- and silver-backed depository accounts that offer debit-like cards that consumers can use to make purchases is expected. Minnesota, North Carolina, Idaho, and almost a dozen other states are considering similar measures.
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