1. Japan – This is primarily a human tragedy and one’s heart goes out to the people of the country. In economic terms, the Bank of Japan is pumping a record $184bn (15tn yen) of emergency funds into the country’s financial system to try to provide stability. Seijiro Takeshita, director of Mizuho Financial Group said to the BBC World Service that this will not be enough and that there is more to come. Our view is that the printing of money at record rates will continue across the West and Japan. This will inevitably bring inflation and as such our belief in gold and silver as the only stores of value is unchanged.
2. Weak housing/jobs data in the UK and US – GDP may be growing but unemployment is still at 1930s levels. Those who are able to buy luxury goods are buying more but the majority is feeling the squeeze of higher taxes and inflation. With unemployment at record levels and the ability of employers to outsource almost anything to competitive Asian economies there is no pressure on wage rates. Real interest rates will remain negative but actual rates will increase a bit so adding to the misery. We believe that the government will respond by printing even more money, worsening the situation and that underpins our gold/silver view.
3. The Euro debt nightmare – Another week and another compromise package. The rates charged on the Greek bailout have been pared and the term extended. It matters not. Greece is still bust and will default. The Irish have been told they can get the same treatment if they hike corporation tax from 12.5% to normal EU levels of 30%. That would give away the one advantage Ireland still has and would see a stack of firms leave Ireland to relocate to other places in Europe where taxes are lower and so are wage rates, etc, etc Portugal has announced some more budget cuts to predictable riots but it is still bust. Euro is eroding and the question is whether you still have faith in paper currencies?The era when people have faith in paper currencies is drawing to a close. There is one currency controlled not by politicians but by nature and that is Gold. As both private investors and Central Banks lose faith in paper they will turn to gold and the supply just is not there. This is basic economics. For the paper currencies supply is increasing & demand falling. For gold the reverse is true. For gold to match – in real terms – the level seen at the top of the last cycle in 1980 it needs to trade at $2,000 oz. But this time that will be just the starting point.”