Reply #100: Gold Knows What No One Knows!

[54anickel]

http://www.kitco.com/ind/Dorsch/apr102006.html

April Fools day usually arrives on April 1st, but the day for the European Central Bank chief Jean “Tricky” Trichet, to play dirty tricks came on April 6th, and left over zealous Euro bulls licking their wounds. Expectations of an ECB rate hike to 2.75% on May 4th, seems like a slam dunk, with the Euro M3 money supply exploding at an annualized rate of 8% in February, way above the ECB's 4.5% reference level for stable inflation, and European bank loans to the private sector expanding at a 10.3% clip, the fastest rate in over six years.

Such a potent cocktail is fueling takeover mania across Europe, where mergers and buyouts doubled to $454 billion in the first quarter from the same period a year earlier, after a whopping $1.03 trillion of deals in 2005. “Tricky” Trichet and his cohorts at the ECB are holding down borrowing costs in the Euro zone by expanding the Euro money supply to meet strong loan demand, in a brazen effort to lift European stock and real estate markets higher.

With demand for cheap long-term credit rising strongly in Germany, questions must be asked about whether the low level of global interest rates are appropriate, said the future ECB chief economist Juergen Stark on March 28th. "We are dealing with a global wave of liquidity today. One must ask oneself whether key interest rates are sending the correct signal here. This development is unsustainable," he said.

snip>

But when the moment of truth arrived for the ECB to walk the talk on April 6th, “Tricky” Trichet pulled the rug from under the Euro, and in the process, created a lot of ill will towards the 12-nation common currency. "The present high probability which is given for an increase of rates in our next meeting does not correspond to the present sentiment of the Governing Council," sending the Euro tumbling against the US and Canadian dollars and the British pound.

But the gold market remained defiant, hovering just below 500 Euros per ounce, even after global bond yields moved swiftly higher. Euro traders are learning the hard way, what gold traders have known to be true for quite some time. Central bankers can not be trusted to preserve the purchasing power of paper money. Gold knows what no one knows!

more...