Dwight:
In light of the currency volatility created since adoption of floating world currencies some 25+ years ago, it is evident the monetarist school of thought will begin to prevail again. Europe is taking note of this turmoil, and it would be foolish to expect them not to adjust their portfolio of gold reserves as the market dictates. Indeed, they are very much dedicated to a strong EU- their are too many political careers in jeopardy of sinking faster than the currency should the EU stumble badly.The EU community will back the currency with gold reserves, as published, but the question will be by how much?
Further, the economies in Europe are learning by the examples provided in the UK over the last 15 years, and more recently, by Denmark. Both have adopted freer market principles in the discipline of daily affairs in the lives of their respective citizenry. I imagine because of this, the EU currency will become more important than the US dollar over time; indeed, the seignorage lost to us will be their gain too.
The most important factor for gold however, will be the amount of US currency sold by the EU countries as they begin to establish reserves in new EU currency. Europe accounts for approximately 40% of world trade, and therefore must shift its current account balances into EU at the expense of the US dollar by at least the equivalent in trade. Likewise, all foreign states trading with the EU community must also carry reserves of the EU, again at the expense of the US dollar. Finally, the Japanese are earnestly selling US assets in support of their domestic economy, again at the expense of the dollar.
All of which is very bullish for gold.
I believe, these concerted actions, beginning with Japan, will hallmark the decline in US financial assets ; look for lower bond and equity prices.
Thus, we will come full-circle from a market of financial assets to one of physical assets; primarily benefiting the metals and other natural resources.
Yours, T.V.H.
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