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When will the European gold shops stop buying and start selling gold?

By: Peter Cooper, Arabian Money

-- Posted Tuesday, 7 August 2012 | | Disqus

We-buy-gold shops have become a common sight in the streets of Europe this year from Munich to Milan and it is not hard to find a second-hand shop doing the same in the UK.

This is a good business for the shop keeper. Scrap metal offers a 20-30 per cent margin to the trader and higher if they push it. The loser really is the seller who has an excellent investment for the next couple of years but gives it up now for less than it is worth.

Selling or buying?

But how long will it be before shops selling rather than buying gold are more common in Europe? In Hamburg we came across a shop in the city centre very actively selling silver coins.

Now that gold is so expensive silver is becoming more popular with investors as the owner told ArabianMoney this week. He sells about the same value in silver as gold these days though of course that means 50 times more in terms of volume.

This is surely a trend that will extend until gold and silver are quite easy to both sell and buy across Europe. People are worried about an inflation that has not started yet. When it does they will quickly start to put more of their savings into gold and silver.

As they do that then the price will go up. That is simple supply and demand. Nobody can quickly magic precious metals into existence. The alchemists never succeeded. Buying scrap gold and silver is as good as it gets.

Some observers worry that higher interest rates will come with higher inflation and that this will be bad for precious metals. Well, that was not the experience of the late 1970s when we had roaring inflation, high interest rates and a gold price that peaked at $2,500-5,000 depending on how you adjust for inflation since then.

Volcker’s recession

The great gold and silver boom of the 70s only ended when Fed chairman Paul Volcker decided to squeeze inflation out of the system in 1980 with very high interest rates and a recession. That could only be done when the US economy has recovered sufficiently from the nightmare crash of 1974.

Today we are barely four years on from the nightmare financial crisis of 2008 and may well be facing a second round as soon as this autumn. A US recession next year and the year afterwards is perfectly possible (click here).

In this climate the global central banks will extend their money printing, one way or another and have all indicated that this is their intention. That means inflation to amortize the bad debts. It has not started and neither has the buying of gold by the general public on the streets of Europe.

-- Posted Tuesday, 7 August 2012 | Digg This Article | Source:

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About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link


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