Financial analyst David Rosenberg says gold could explode to $3,000 an ounce as European investors dump the ailing euro in exchange for the precious metal while JP Morgan states that bullion could face unlimited demand as panic buying ensues on the back of crumbling confidence in fiat currencies.
Rosenberg, chief economist at Gluskin Sheff, says the breakdown of the euro is extremely bullish for gold, especially in light of speculation that the ECB could be planning more quantitative easing (printing money).
“The case for gold heading to $3,000 an ounce is getting stronger by the day. The Euro has already broken below 1.30 to the U.S. dollar and there is plenty of room for additional decline going forward. It’s only at a one-year low — wait until it moves to a decade low,” writes Rosenberg.
Rosenberg points out that the problems in Greece, Spain and Portugal have little to do with liquidity and everything to do with “a crisis in confidence”.
“Make no mistake — the problems in Greece are mirrored in places like Portugal and Spain — this is not about liquidity, like Bear Stearns and Lehman, it is a crisis in confidence (Banco Santander, widely seen as a barometer of financial health in Spain, cratered 7% yesterday). The FT reports today that there has been some market chatter that Spain has been “negotiating” with the IMF for assistance (€280bln) too. History shows that crises over confidence are tougher to repair over the near-term than liquidity crunches. The fact that Greek short-term bonds have collapsed in price even more — even though the country does not have to come to the market for the next few years so long as Germany comes through after the vote — is a case in point,” he writes.
JP Morgan’s John Bridges attributes the latest breakout in gold to all time highs to the crumbling confidence in fiat currencies and is recommending clients increase their exposure to the metal.
“When investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited,” said Bridges.