What about Gold?

The question facing the long-term investor in gold is "when are the supplier nations (the manufacturing and commodity nations) going to demand payment in gold, or gold-backed currency"? The answer lies in the nature of the relationship that exists between supplier and user, which is symbiotic and mutually beneficial. Neither can prosper without the other; what is good for one is good for the other....up to a point. This holds true only while both parties are benefiting but as soon as either party ceases to benefit, the relationship must end.

At this time, the US dollar is holding up strongly; given dollars, you can buy anything you want. As a store of value, it is -- today -- perfectly good. So the supplier nations are still happy to be paid in dollars (or any other currency that can be exchanged for dollars on the open market). However, there is considerable concern that the dollar will lose its value by combination of deliberate actions by the Fed and factors largely outside the control of the USG (principally high levels of debt and insufficient assets).

The Euro has been exposed as a currency in at least as bad a situation if not much worse than the dollar. The Swissie is too small and needs to be linked to the EUR for trading reasons. This only leaves gold for the time being - in due course another currency might emerge and take over the baton from the dollar but that is some way off.

At this time there is no real alternative to gold as an alternative means of payment.

Presently, the value of the dollar is being supported entirely by fashion and confidence. If people lose confidence in the dollar, it will become unfashionable to hold it and its value will fall -- maybe very quickly indeed. Timescales? That's the $64,000 question but when it happens - if it happens - it will most likely happen very quickly over a period of days or weeks rather than weeks or months.

Has G20 altered the medium to long term outlook?

The main things that were agreed at the G20 summit were:-

1. The world's financial system is in a pickle
2. There will be a new 'world order' passing more influence from the US and developed countries to eastern countries
3. More central bank support is required
4. The IMF will have more money to lend probably by selling part of its gold
5. China is not happy about US QE as that is likely to devalue the dollar, and China has massive dollar holdings in treasuries

Meanwhile, the unemployment rate in the US rises to 8.5% with forecasts of 10% or more, to follow. Obama says that bankruptcy is the best way out for GM. US Treasuries fall. British Airways traffic fell 7.4% last month. UK house prices fell 1.9% in March.

I don't really think that this week has done anything for the current crisis. The publicity and support from central banks probably helped to push the stock markets a little bit higher but they show signs of wanting to fall back again. I'm afraid that the whole thing was a rather pointless waste of everyone's time -- principally because everyone had their own agenda and had already decided on the outcome.