European investors pour money into gold

One of the things to bear in mind about markets is that they have a way of cutting through the BS and spin that so often passes for reality in today’s gullible world. Watching a market react to a batch of bullish news by selling off tells us one of two things:

1.) The market has already priced such news in and traders who bought ahead of the news are now taking profits as the novices rush in and get their heads handed to them.
2.) The market is weaker than meets the eyes and is primed for a harder fall.

Same goes for a market that moves higher on what is generally regarded as bearish news. The news comes out, the market moves lower and then rebounds with a fury. What is that saying?

1.) the market has already discounted the news and now traders who were short are booking profits
2.) The market is internally much stronger than meets the eye.

In the past two days we have seen gold hit with a one-two combination punch which could not knock it out even though it initially sent it reeling. The first slam was the obvious ploy by the IMF to knock the price of gold down just as the technical indicators were turning positive and momentum funds were becoming interested in moving over to the long side. The second punch was the Fed’s announcement of a ¼% hike in the discount rate which sent the Dollar soaring and the Euro sinking. Sadly for the gold bears, gold took both punches, dusted itself off of the mat, and then came back and did some counterpunching on its own.

Here is the key to this development – just watch the price of gold in Euro terms as was pointed out earlier this week when discussing the flaws in the Precherites analysis of the gold market.

Succinctly – gold is continuing to make one new record high after another when priced in terms of the Euro. While we here in the US are naturally focused on the Dollar price of gold, gold is performing superbly in terms of the European currencies.

Fears concerning the longer term viability of the European monetary union, which I might add were destined to come to the forefront due to the “one size fits all” model which cannot possibly work with a series of nations with such different cultures and differing economic models, have sent European investment money pouring into gold ( Did you not read years ago before any of this occurred when Jim wrote that the Euro was a basket of junk). FEAR is driving this phenomenon and fear of such nature is not going to be easily assuaged by rhetoric. Investors on the continent are doing what they always do when faced with a currency whose foundation is shaking – they are moving into gold in a very large way.

It is not just the continent, but also across the Channel, that investment money is pouring into gold – witness the rise in gold priced in terms of the British Pound, another currency which is rapidly losing investor confidence. It too is threatening to also make another all time high, something which it just did a mere two months ago.

Ditto for gold when priced in terms of the Swiss Franc. While it has not yet put in an all time high, it is currently at its highest level since 1980.

As you can see, anything related to Europe is struggling in terms of gold. The Fed may posture and preen and try to establish its “hawkish” bona fides, but the facts are that what is occurring as a crisis of confidence in Europe, is overriding obvious attempts by the official sector to derail the rise in gold.

Simply put – gold “just ain’t buying it” and is telling us that it WANTS to go higher. This is the kind of sentiment that is reflected when a market rejects a bearish dose of news. It is going to take a very huge concerted effort on the part of these enemies of gold to stuff the yellow metal into a box. The WAR is heating up and looks to become even more fierce. Fasten your seat belts.