Wednesday, May 23, 2007

The Pain in Spain is an anti Fiat Refrain

I've mentioned before about the high level of gold selling over the last few months and now the who and the why of this selling has finally come to light. On first look it appeared to just the run of the mill gold liquidation used by many central banks to weaken gold and in turn strengthen the U.S. dollar. The U.K. Telegraph however reports that 80 tonnes of the recent selling can be attributed to Spain, further they claim that it’s not dollar motivated but pure survival as Spain struggles with a burgeoning account deficit that as recently hit 9.5% of GDP

Spain in order to cover its expenses has been selling off its gold. These sales have resulted in Spain’s foreign currency reserves falling from 41.5 Euros to a meagre 13.2 Billion since 2002. This amount is only 12 days of imports and the continued shrinkage of these reserves could jeopardize Spanish Economic stability.

Portugal and Greece are reported to have similar reserve shrinkage problems and should they run out of cash the other EU Central Banks are obligated to act as a “lender of last resort”. Should any one of these countries falter it will spread the pain over the entire Euro Zone.

What does this matter to silver and gold?

1. We know that the Euro is not necessarily a risk free alternative to the U.S. dollar
2. We see the real instability of the Euro which is a further indictment of Fiat currencies in general
3. More people will get scared as the 18 month window for Spain’s shrinking reserves approaches, some of these scared people will invest in metals, earning early investors a healthy profit.
4. We learn it was not a deliberate attack on the gold price, not that it’s relevant. Still it got sold softening the price so now we should take advantage of their misfortune.

Prices look soft; paper looks suspect, do your self a favour and go buy some silver.

Update

I tripped onto another reference to this story
http://news.goldseek.com/GoldForecaster/1179936000.php

It's is believed that a Spanish housing boom that has tripled prices in recent years is about to pop after anti speculation laws were passed. If spain should have a housing slump like the U.S. is suffering now it will certainly be a likely trigger for finacial crisis.

Hell even Mogambo commented on this today, Ha I beat him to it, so I get to say "We're freaking doomed!"

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