The Markets, the Eurozone and Gold

The markets are on the rise in the United States but not in Europe, although even Wall Street took a big hit today after China announced a 7.7% growth in its economy, lower than expected. The dollar is hovering near $1.30 to €1.00. Japan is pumping Yen into its economy at a rate that would make Ben Bernanke blush - and is having to defend itself against accusations that it is deliberately driving the Yen down against other currencies in order to improve its worldwide trade position by having a less costly currency. And, everyone is selling gold, that bulwark against inflation and lately become the subject of serious discussions about a return to the gold standard - that is, forcing central banks to support their paper currencies with gold that could be demanded as payment by presenting the paper money to the central bank. That, as we all can well imagine, would put a huge wrench into the world's central banks, because it costs them nothing now to simply print as much paper money as they need to keep their economies afloat. In fact, while the obvious reasons for the fall in the price of gold are the threat of Eurozone leaders to force Cyprus, and perhaps Spain and Italy, to sell their gold reserves to cover their bailout needs - some think the whole idea of selling sovereign state reserve gold is precisely to prevent gold from becoming a standard for world currencies because that would end their ability to print paper money at will. And, some say that the money pumped into the US economy by Bernanke is causing the rise on Wall Street, fed by the return of individual investors. But Yale University economist Stephen Roach told CNBC on Friday, "Japan had its zombie corporations; we have zombie consumers." Roach, a former Morgan Stanley chief economist, disagrees with the notion that US buyers have recovered from the 2008 crisis. "The next time somebody says, 'yeah, the American Consumer is back,' ask them to try to justify that against...one number : Five years of consumption growth, in real terms, of less than one percent a year." Friday's soft-looking economic data supports Roach. The latest reading on consumer sentiment fell to a nine-month low in April, and retail sales showed another contraction in March, following last week's report of weaker job growth. ~~~~~ So, dear readers, we need to wait and watch. Will Cyprus actually sell its gold? Will the Eurozone be able to hold its currency together? Will central banks be forced to cut back on money printing by forces demanding some sort of value, perhaps gold, to support the paper? And is the American consumer back in sufficient force to drive the US economy upward? It all could be a soap opera, except that it is very serious for everyone. The world's two largest gold holders are probably George Soros and John Paulson. Soros says he's selling gold ETF holdings. Paulson so far has not said he's selling. Take your choice.