Trader sentiment is firmly with gold again this week as ongoing tensions in Ukraine continue and an economic slow-down in China has got nerves wrangling over the strength of the global economy.
Throwing cola into the fire is none other than former Assistant Treasury Secretary of the US, Dr. Paul Craig Roberts, whose latest have raised fears that the crisis in the Crimea could be manipulated by the US and escalate into war.
“They want war,” Roberts is quoted as saying, “They’ve wanted it since Reagan was President.” Coming from someone as influential as Dr Roberts, alarm bells are ringing and gold continues to rise, picking up another $5.30 in today’s trading.
What’s the fuss with the Crimea?
The Crimean peninsula on the Black Sea used to belong to Russia before it was gifted to Ukraine in 1954. The Russian military however, still have a naval base there as it is a strategic position between Europe and the near east.
The US also has strong ties with Ukraine and their interim Prime Minister, is in Washington to hold strategic talks with President Obama. The US feel they can devalue Russia’s nuclear base in the Black Sea by placing anti-nuclear bases along the Ukraine border. That will force Putin into a decision whether or not to make a military strike before Russia’s position is completely undermined.
Roberts also made the observation that the quantitative easing money creation is propping up a weak dollar. The liquidity created by the US Federal Reserve fuelled emerging markets, but now they are trimming back the cash injection, it poses a new financial threat that could collapse the system.
Why buy gold and silver?
The US Fed has been selling gold shorts to keep the price of gold up. According to Dr Roberts this tactic is to prevent exposing “the worthlessness of the dollar.” Because the Fed can pay debts in its owned currency it can hold up against trade balance.
However, the US is a “busted state” with almost $18 billion dollars of debt weighing like the proverbial albatross. If the dollar collapses, the US lose the power of owning the world’s reserve currency, and with it their political and military status as a world superpower.
If the dollar sinks, it will have serious complications for the west and the globe as a whole. There are plenty of nations who would love to see the US knocked from its perch and with a currency crisis hanging round their necks the FED may have to decide whether to recover the bank bailouts in order to rescue the dollar.
So now we understand why the US might be prepared to take a hard line against the Russians, we can understand why professional traders are protecting themselves with the safe-haven of gold.
coininvest.com recommends casual investors do the same, because if the Ukraine crisis does spill over into war or the dollar does collapse, the global economy will be in tatters again.