The pessimism in the precious metals market just has to be at something of a high point. And yet there is an obvious point of release on the horizon. Greece runs out of cash in six weeks’ time and that will finally force the eurozone to do the necessary and print money again.
At the same time the long-standing enemy of bullion prices, JP Morgan is in serious trouble with its derivative gambles on the eurozone. Estimates of losses were originally $2 billion but we now have $5 billion suggested by rival Morgan Stanley.
In truth nobody knows because these trades are still unwinding. If JP Morgan has really bet heavily on the wrong way on the euro then this titan of Wall Street could be in deep trouble. If it had to unwind its silver short position suddenly that would be the market-moving event that silver bulls have been expecting for ages.
British historian Niall Ferguson argued in the Sunday Times that the Germans will ultimately choose a federal solution to the euro crisis over a disorderly break-up of the union because the cost of the alternative would be higher and because Germany is actually politically fully committed to a united Europe.
That is impossible for xenophobic Britons to understand. The island mentality dies hard with a vengeance. English Channel foggy, continent cut-off! Just a shame for the knuckle-headed British then that the eurozone is the largest economic bloc in the world, bigger than the US or China, and right next door!
However, as Professor Ferguson expounds the single european currency was designed with flaws that would ultimately produce a crisis. He even predicted that it would happen at the time of the launch of the euro. The crisis is no surprise. It has two solutions: a federal Europe or a descent into economic chaos like the 1920s and 1930s.
German real politik
Modern German politicians and to be fair the vast majority of Germans have no wish to return to their troubled past. They see themselves as the guardians of modern Europe and their huge corporations make a very great deal of money out of it.
Simple self-interest rules in the end, argues the extremely bright professor who is no great fan of federalism himself. Turning this around to the self-interest of gold and silver investors and the message is simply to be patient and wait a short while for the crisis to develop.
Europe will have to inflate itself out of its sovereign debt crisis and the Fed will follow suit. How this will or will not benefit the economy can be discussed elsewhere but it will be singularly good news for gold and silver, especially if the biggest short in the bullion market, JP Morgan is facing the wrong way.
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