The price of gold is going sideways. For some ‘experts’ it’s a sign that the comeback of the yellow metal is nearly over. But they tend to forget this is very a weak season for gold. History shows March is the weakest month for gold. Hedge Fund manager Dan Tapiero even expects gold will make its comeback to $3.000.
Since 1975, when gold again became legal to own, March was historically the worst performing month for gold. And don’t forget, after a 20% rise in 9 weeks, it’s no wonder gold takes a little break.
European banks are sick
But strong fundamentals still play in favor of gold. In Europa there is only a strong demand for physical in Switzerland. But emerging market, especially China and India, rally love gold. Even the United States is kicking itself back in the game. Golden eagles and maple leafs are sold out, sooner as expected.
It’s just a matter of time before Europe joins the party. The European banking system is very weak. The EU Bank index is at the same level as it was in 2008. European banks barely recovered from the financial crisis in contrary to US Banks.
Contagion could spread to the US
The Big Recession started in the United States and followed through to Europa. Maybe the next time it will be the other way around. A sick banking system is probably the reason why interest rates are extremely low in Europe, even negative. Governments can sell bonds and get paid for it.
Normally the German Bund and US Treasuries follow each other closely. But today the German 2Y Bund yields minus 0,50% and US 2Y Treasury yields +0,80%. This is the biggest spread since 2005-07 when rates were rising.
The European banking index says something is wrong and negative Bunds suggests Europe has a problem. This means the United States can get into trouble very quickly when Europe derails. Germany’s biggest bank, Deutsche Bank, equity price is below the financial crisis low again and their credit default swaps are exploding.
