Gold Could Explode To $3,000 As Confidence In Currencies Collapses

Financial analyst David Rosenberg says gold could explode to $3,000 an ounce as European investors dump the ailing euro in exchange for the precious metal while JP Morgan states that bullion could face unlimited demand as panic buying ensues on the back of crumbling confidence in fiat currencies.

Rosenberg, chief economist at Gluskin Sheff, says the breakdown of the euro is extremely bullish for gold, especially in light of speculation that the ECB could be planning more quantitative easing (printing money).

“The case for gold heading to $3,000 an ounce is getting stronger by the day. The Euro has already broken below 1.30 to the U.S. dollar and there is plenty of room for additional decline going forward. It’s only at a one-year low — wait until it moves to a decade low,” writes Rosenberg.

Rosenberg points out that the problems in Greece, Spain and Portugal have little to do with liquidity and everything to do with “a crisis in confidence”.

“Make no mistake — the problems in Greece are mirrored in places like Portugal and Spain — this is not about liquidity, like Bear Stearns and Lehman, it is a crisis in confidence (Banco Santander, widely seen as a barometer of financial health in Spain, cratered 7% yesterday). The FT reports today that there has been some market chatter that Spain has been “negotiating” with the IMF for assistance (€280bln) too. History shows that crises over confidence are tougher to repair over the near-term than liquidity crunches. The fact that Greek short-term bonds have collapsed in price even more — even though the country does not have to come to the market for the next few years so long as Germany comes through after the vote — is a case in point,” he writes.

JP Morgan’s John Bridges attributes the latest breakout in gold to all time highs to the crumbling confidence in fiat currencies and is recommending clients increase their exposure to the metal.

“When investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited,” said Bridges.

Overwhelming demand for gold in Europe has led to shortages in the precious metal, with the Austrian mint being almost depleted due to “panic buying” from worried Europeans, and demand for silver has also followed suit.

“As long as governments continue to struggle with spiraling debts and are forced to crank up the printing presses, gold will continue to outperform currencies, a situation which is unlikely to change any time soon,” we wrote on April 30.

In the two weeks since then, confidence in the euro has rapidly deteriorated despite gargantuan IMF and EU bailout programs totaling over $1 trillion dollars. The euro enjoyed a brief bounce following the announcement that more taxpayer money would be handed over to European banks, but almost immediately resumed its downward spiral.

Now many financial firms are predicting that the euro will sink to parity with the U.S. dollar, a level not seen for around eight years.

But that’s not to say that the dollar is gaining strength , it only appears so when measured against the even sicker sterling and euro. Gold’s all time dollar record illustrates that every major currency is suffering as governments and central banks crank up the printing presses, ensuring devaluation and future inflation.

Unless the entire approach of dealing with the economic chaos is re-aligned, and banks and other financial institutions are allowed to fail, which at the moment is a remote possibility, gold will continue to soar. So long as there are bailouts, austerity measures, and the riots in the streets that they engender, gold will preserve its status as the go to commodity in times of economic and social peril.

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