Mark O'Byrne's Blog

The 27 member states of the EU will meet in Brussels today and tomorrow. The agenda includes, Greece’s progress in debt talks with creditors, organizing a common eurozone budget and initial discussions for the proposed EU banking union.

U.S. election years tend to see gold underperform vis-à-vis other years and this was seen in 2004 (+4.7%) and 2008 (+5%) when gold saw only marginal gains compared to the 17% annualised dollar returns seen in that decade.

Gold edged up $3.40 or 0.19% in New York yesterday which saw gold close at $1,778.50. Silver initially climbed to $34.848 then it fell off in afternoon trading and finished with a loss of 0.06%.

As living standards fall and livelihoods are being wretched voter anger is becoming increasingly palpable, especially in countries such as Spain and France. History provides countless lessons as to the political consequences of detached economic policies and their real effects.

Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P. and one of the most successful hedge fund managers of all time told Maria Bartiromo last week that he owns gold and that he sees no “sensible reason not to own gold”.

The most vocal critic of the ECB’s recent ultra loose monetary policy, Jens Weidmann, the influential head of the German Bundesbank, has again attacked current ECB monetary policy.

Bernanke’s announcement of further money printing and ultra loose monetary policies saw gold and silver surge in all currencies yesterday. Gold rose $34.30 or 1.98% in New York and closed at $1,732.00. Silver soared to a high of $34.781 and finished with a gain of 4.34%.

Gold imports by China from Hong Kong rose in July as Chinese people renewed their buying of gold to hedge against financial market’s turmoil and weaker currencies with increasing concerns about the Chinese economy and stock and property markets.

Research houses, analysts and banks are revising their estimates for year end 2012 gold prices higher. They believe that concerns about inflation and demands for gold as a store of value should lead to higher gold prices by the end of 2012. JP Morgan and Goldman Sachs have overnight revised upwards there year end forecasts to $1,800/oz and $1,840/oz respectively.

Gold prices languished from 1980 to 2000 and had declining correlations with debt levels because GDP growth was sufficient to mute fears about budget and deficit issues. The current economic recovery has been too weak to support a sustained rise in real rates above the 2% level that has acted an inflection point for gold prices.