Currency Wars Will Boost Gold

Gold and silver got whacked again on Friday, prompted this time by news that economic growth in China came in at a disappointing 8.1%. This was down from 8.9% in the previous quarter, and the slowest rate for three years. Chinese consumer prices were up 3.6% in March – below the government’s 4% target and considerably off the 6.5% reached last July. The BBC notes that the People’s Bank of China is likely to take further measures to “loosen monetary policy” in response to this disappointing data.

At the same time, Spain’s debt woes are creating fresh enthusiasm for the dollar as a “safe haven”. The Dollar Index is back above 80, with the yield on Spanish 10-year sovereign debt hitting 6.1% this morning. Both French president Nicolas Sarkozy and Spanish politicians are calling for the European Central Bank to do more to “support” the eurozone. Despite the already massive expansion of the European Central Bank balance sheet over the last six months, we’ll probably get more action from Frankfurt in order to take the pressure of Spanish bond yields.

Amid Europe’s doom and gloom, the one bright spot this morning was news that the eurozone posted a 2.8 billion euro trade surplus in February, compared with a 7.9 billion deficit in January, and a 2.8 billion deficit in February 2011. No prizes for guessing the country with by far the largest February surplus: Germany, at 10.5 billion euros. Berlin is – on this front at least –well served by euro membership. This is also yet another reminder of why, from the perspective of pure European Union self-interest, cheap money from the ECB is a boon – as a sustained period of euro weakness will go a long way in terms of taking the pressure off stricken peripheral nations. In the words of economist Nouriel Roubini: “the euro needs to be weaker.”

We’re back again to the currency wars. As Gabelli gold fund manager Caesar Bryant comments at King World news, there will be more monetary easing all over the world, as countries attempt to devalue their way out of trouble. In Bryant’s words: “all of this is positive for gold.”