Wednesday, September 8, 2010

Gold Soars to Record Close on Sovereign Debt Crisis

We've talked about it quite a few times on Everything Gold that the so-called stress tests on banks in Europe were a joke, and the idea that the European sovereign debt crisis had been avoided on that and the selling of some bonds to the private sector was so ludicrous as to not be taken seriously by anyone that has the least bit of understanding of economics.

The record-breaking close of gold today underscores the reality that investors know the shenanigans going on in Europe, and are ready at the drop of a hat to plow their money back into gold as the reality of the ongoing recession continues to play itself out.

A number of commentators, including us, said from the beginning of the stress tests that something smelled, and they were far from being tough in any way. That has proven to be true already, and we'll see all this unravel before our eyes again.

It'll be interesting to see what games and gimmicks are employed by governments as the truth gets out to the general public.

As far as the record price of gold, for December delivery it closed at $1,259.30, a gain of $8.20, on the Comex division of the New York Mercantile Exchange.

According to the Wall Street Journal, a total of 91 banks purposely used lenient and slack parameters when they performed the stress tests, again though, something that was talked about when they were first performed.

What they did was hide the actual exposure they had to sovereign debt, giving the appearance of health and solvency.

This is why gold prices have continued to have support, even when it appeared there were some economic strength emerging. We knew the data were being cooked, along with the books, and it was only a matter of time before that was revealed to be what it was.

And if the anchor nation of the European Union, Germany, must raise about $135 billion for its 10 largest banks, where does that leave the rest of Europe? I think we all know the answer to that.

The ongoing disaster of the U.S. economy also offers another reason gold will have solid growth for some time to come.

There will be some global economic growth, assuming China and India can bear their part, but even there questions are emerging as to how much they can carry the global economy, as America will no longer be a player in that regard for some time to come, as consumers continue to pay down debt and increase their savings.

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