What on earth is going on?

By Josh Saul

• Gold has moved down
• Spanish bonds are yielding 6.8%
• S&P 500 has lost 3.5% in 2^nd week of April
• Inflation is dangerously high
• Sterling – 17 month high

Bank deputy governor Paul Tucker warned that inflation is ‘uncomfortably’ high at 3.6% and will remain well above the 2 per cent target for much of this year.  Consequentially the government has decided to cease all current Quantitative Easing in a last ditch attempt to rescue the Pound.

Whilst the pound rose above $1.60 and €1.22, the issue in many critics’ eyes is, how long can we survive without QE? In the first instance Britain has come under immense pressure to contribute billions more to the Euro Bailout Fund.  Secondly the UK needs to enhance GDP and spend within the economy and the only tool available in spite of low interest rates is to print more money. Critics doubt that the UK will be able to maintain their QE stance much longer…

Interestingly the enhanced value of Sterling has meant that it takes fewer pounds to buy the same ounce of gold thereby making it appear cheaper.  Demand is in fact going up – especially with the S&P 500 dropping in excess of 3.5% and more so with gold prices representing a very strong buying opportunity at present.

Spain has become front and centre in the European debt crisis with Spanish bonds yielding as much as 6.8%. When that figure reaches 7% – Spain like Greece, Portugal and Ireland will need to be rescued.  With France also being dragged into similar discussions the need for a larger Euro bailout Fund and pressure on the UK to contribute is stark.

Crisis and contagion within the global markets is clearly affecting confidence and the equity indices are suffering.

It’s like a house of cards; which card will be drawn first? QE or Euro Bail Out?

Either way, all likely outcomes point towards the masses flocking to gold just like China, India and Brazil.