This week has seen more weakness in gold prices. Gold prices are currently at the $1150 range with silver at $15.50. The weakness can be directly attributed to the strength of the dollar, which has recently reached highs not seen since 2003, and has done so in a remarkably short period of time. With the volatility in the currency markets, things are starting to get interesting In banking. Large swings in currency markets have historicaly lead to severe disruptions in the global economy.
Take the recent example of Heta Asset Resolution AG, the third largest bank in Austria. This bank is worthless after an unprecedented move in the Swiss franc and a huge sell off in the euro vs. dollars after the implementation of EU QE. Wha surprises are just around the corner for the US banking industry after the huge run up in the value of the dollar? The feeling is pervasive that something “big” is just on the horizon.
The graphic below shows the size of the currency market according to The Bank of International Settlements (BIS). These are daily volume numbers. Currency markets drive the liquidity for the financial world. We are starting to see extreme volatility in currency markets brought on by direct intervention of central banks to devalue their currency. For people investing in gold and silver, now is a unique and ideal opportunity to “sell” dollars at twelve year highs and purchase gold/silver at five year lows.
The next couple of months should be interesting. The Federal Reserve has indicated they wil raise rates as soon as this summer. But, with the US economy headed back into recession, we’ll see if that holds true; I have my doubts. However, I do believe it will not be long before the Federal Reserve will announce more QE.