The below commentary was posted Monday on the Mercenary Live Feed:
05/23 Final Stretch3:32 pm – May 23, 2011
We’ve got a bounce heading into the close, but not enough of one to change the tone or provide real daylight for bulls.
The remarkable thing about the Europe situation is this: There is simply no workable solution to the problems mounting now. The “get out of jail free” cards are all gone. The “kick the can down the road” option is expiring. Allowing a debt restructuring for Greece invites a catastrophic domino-like effect as other periphery countries get sucked into the vortex. Avoiding all talk of restructuring (the plan so far) is a recipe for voter upheaval, taxpayer revolt, and possible voluntary withdrawal by Greece or Ireland as the local economics grow unbearable.
And German and French taxpayers, via German and French banks, are on the hook for hundreds of billions in accumulated sovereign debt liabilities, regardless of whether the euro holds together as a currency or not.
The most realistic solution we see is some kind of back room euro zone deal that amounts to “print like hell,” i.e. aggressively monetize Europe’s debt (pay it off with monopoly money). This realization, on the part of other traders, may be part of what is contributing to gold’s strong performance on an otherwise dark red day. The yellow metal is still the one currency not subject to a printing press.
Long gold may be a new position soon, given the yellow metal’s relative strength and ability to win in both inflation and deflation scenarios. Otherwise, we continue to observe the carnage — having deliberately positioned for it — and let our short positions work as the speculative structure unwinds…