Monday, April 28, 2014

Gold Backwardation Like This Has Never Happened in History-James Turk

"Gold expert James Turk says the Ukraine crisis can affect the price of gold. Turk says, “Whenever there is global tension, people go to safety, and one of the greatest safe havens of all-time has been gold.  It’s been money for 5,000 years, and it’s still money and still a safe haven because it’s money that doesn’t have counter-party risk. . . .  Gold does respond to geopolitical tensions, and I must admit the situation in Ukraine is getting more serious.  I would not be surprised if the tensions continued to rise.”  So, could this be a trigger to cause distress in the global financial community?  Turk contends, “Yes, it really could.  This could blow out of proportion very quickly, and it would be much more serious than what happened in the Balkans where there was a shooting war.  What’s happening here is you are talking about a major economic power and the use of sanctions.  In WWII, one of the causes of friction between the United States and Japan was the economic sanctions the U. S. imposed on Japan because of their incursions in China.  It is eerily similar to what is happening now with Russia, and I think the stakes are just as high when you are talking about two major powers confronting themselves this way.”  
As far as ratcheting up sanctions, Turk worries, “To do it in an environment where economic conditions in both the United States and Europe are very weak is even more worrying.  You just do not have the economic base as you would during a period of strong economic activity.  You have to remember these sanctions can bite home.  People living in glass houses should not throw stones, as the old saying goes.  The issue here is there is so much debt and counter-party risk between various players in the global economy that it has a knock-on effect, and we just don’t know how that knock-on effect is going to play out.  If you look back to 2008, during the financial collapse then, we saw Bear Stearns get into trouble and then some European banks get into trouble and, ultimately, Lehman . . . fell apart and collapsed, and that had a knock-on effect as well.  We just don’t know how it’s going to play out, but it is very worrying to see these threats of economic sanctions and imposition of economic sanctions and this war of words.  It is potentially very serious.” 


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