Gold price struggling to get back above $1600 as Citi says “drop money from helicopters”

Gold briefly managed to get its nose back above $1600 but has since falling back to around $1595 this afternoon.

All eyes are back once again on Greece (er, weren’t we all told that Greece was fixed?). After the elections in Greece and the rise of the extreme left and extreme right – both wanting to end the Greek infatuation with the € – it looks like a government can’t be formed that is palatable to the Eurocrats in Brussels and the mandarines at the European Central Bank.

This is a problem because the Greeks have quite a lot of maturing debt that it needs to finance. It was planned that ‘bail-out’ funds given to Greece would be used to pay their crippling debt.

But yesterday saw the EU hold back some €1bn in bailout money claiming that the Greek’s didn’t need it this month. More likely the EU is getting very jittery that a mix-match of newly elected politicians in Greece will turn around and default on all that debt.

If the EU holds back anymore scheduled payments to Greece this will happen anyway. The most likely outcome at this stage is the very one outcome that the EU has been trying to avoid from the very start – namely that Greece ditches the €, and all those bailouts will go up in smoke.

It will also be interesting to see the knock on effect and see if anyone else get’s out of the € (***cough*** Spain ***cough***).

In short because a politicians hand has touched the situation in Europe it can be best described as a complete and utter mess. And it is these messy times that are precisely why people invest in gold in the first place. Things in Europe can (and will) spin out of control very quickly and that is when gold will come into its own.

Gold $:

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Gold £:

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Gold €:

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So why will gold come into its own faced with an imploding Europe. Because, as the good people at Zerohedge.com point out, we will get more and more calls like the insanity which is published below.

Here are some excerpts from Citigroup’s Willen Buiter – their Chief economist no less -in a piece yesterday:

In cooperation with the fiscal authorities, the central bank can engage in helicopter money drops….

…Consider the thought experiment where the Chancellor of the Exchequer sends a £1000 cheque to every man, woman and child in the UK and funds this by borrowing from the Bank of England, which monetises the debt and commits not to reverse this ever. Now consider the following negative economic environment: the British public has become Teutonic in its attitudes towards thrift or caution and decides to save the entire windfall. The solution is simple. Repeat the exercise with a £10,000 cheque for one and all and keep going adding zeros until the consumer cries uncle and starts spending.

…A helicopter money drop is not difficult to implement. It would most likely be politically popular….

Unless the central bank makes a credible non-reversal commitment today, however, the asset purchases and monetisation may be interpreted as temporary – as QE – and their effectiveness therefore less than would have been the case had it been recognised for what it is (or may be) – helicopter money.

Helicopter money, even in huge amounts, need not become inflationary ever…

…Such a rejection of cooperation between monetary and fiscal authorities and of coordination between monetary and fiscal policies reflects an elementary but damaging misunderstanding of the meaning of independence, in our opinion.

[emphasis ours]

Yes, that really is what a grown man with a very grown-up job, and apparently an expert in economics, is suggesting to fix the worlds problems. Print…More…Money.

The sad thing is, is that the above is a classic view of those who are also in control of the levels of the printing presses around the world.

Be under no illusion – they will print, print and print again. And it is exactly and precisely for these reason that people should be clinging on to all the gold they can get at these prices right now.

Related posts:

1. Some perspective on the gold price drop
2. Gold price keeps testing that $1600 level
3. Gold price back over £1100
4. Gold price dips to $1630 (again) and then bounces back towards $1650 (again)
5. Gold Drop from Record Price Prompts Investor Demand

Link to this article: : http://www.goldmadesimplenews.com/gold/gold-price-struggling-to-get-back-above-1600-as-citi-says-%e2%80%9cdrop-money-from-helicopters%e2%80%9d-6870/

Posted by Thomas Paterson on May 10 2012. Filed under Analysis, Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.