Greenspan: World Must Return to Gold Standard

(July 5, 2016 - by David Chapman)

Brexit: Get out the pitchforks

Brexit is the only story of the week. More has been written on Brexit than almost anything else since June 23, 2016. Markets have roiled, taking a worse beating than they did following the Lehman Brothers bankruptcy that triggered the panic of 2008. Currencies have tanked. The US$ has soared. And so did gold.

Pundits said that Brexit wouldn’t win. It did, throwing conventional wisdom out on its ear. But will Brexit actually ever happen? Political, financial and economic uncertainty is sure to dominate going forward.

The British people were mad at the EU. The EU had become a monster that needed to be slain. Populist politicians, who seem to come to the forefront especially during periods of economic stress, led the ‘leave’ campaign. The mob got out their pitchforks and wanted to burn the monster (the EU) at the stake. Political parties split.

The prime minister resigned, but not until October, and he will leave it up to his successor to trigger Article 50 in order to really start the Brexit process. Who knows. It may not happen. Brexit was non-binding. But the uncertainty is sure to continue, not only into October but also into November, when the US elections have the potential to be, well, a ‘riot.’

Globalization and the bailout of the financial system both created winners and losers. The rich got richer and the poor, well, they got poorer. They are now flocking to saviors no matter how unsavory some of them might be. We live in interesting times.

We have always contended that a real bull market cannot get underway for gold and precious metals until it is rising in all currencies. Gold remains a key reserve currency in the world’s central banks, alongside the US$, euros, British pounds, Japanese yen and, increasingly, the Chinese yuan.

Former Fed Chairman Alan Greenspan also spoke this past week. He warned that Brexit could trigger further crises, and said that the world needed to return to the gold standard as it existed prior to the creation of the Federal Reserve in 1913. We are sure that went over well in the world’s central banks and private banks.

Gold appears headed to test major resistance up to $1,400, and silver could rise to $20/$21. Technical patterns have been positive, and pullbacks have been shallow. The negatives are the increasingly negative commercial COT and sentiment that is getting into frothy territory.