Financial Times
December 11, 2011
It appears that the faulty plumbing connections in the euro area banking system are now creating something I have never seen before: a crisis of confidence in a monetary system that leads to a frantic sell-off in gold.
The partnership between the Federal Reserve and European Central Bank to provide hundreds of billions of relatively low cost dollars for euro area banks should have relieved the pressure to come up with greenbacks. Yet gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.
As James Steel, a gold market analyst for HSBC Securities (USA), says: “Until the funding difficulties at European banks are resolved, it is difficult for us to see any near term halt in gold lending. This may help keep gold prices on the defensive.”
The underlying problem in the euro area’s crisis management at this point is a shrinking supply of attention span. All significant decisions are now being piled on to the desks of a small number of overwhelmed politicians and their underequipped staff. So critical tasks just aren’t being completed.
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