Tags: Rosenberg | Euro | Gold | 3 | 000

David Rosenberg: Euro Breakdown Could Drive Gold to $3,000

Wednesday, 05 May 2010 11:49 AM

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Gluskin Sheff analyst David Rosenberg says the breakdown of the euro could well drive the price of gold to $3,000.

"The case for gold heading to $3,000 an ounce is getting stronger by the day," Rosenberg writes in a note to investors.

"The euro has already broken below 1.30 to the U.S. dollar and there is plenty of room for additional decline going forward."

"It's only at a one-year low — wait until it moves to a decade low."

The European Central Bank, Rosenberg notes, has been forced to water down its charter as it permits sub-investment grade Greek bonds as collateral.

“Sadly, the central bank is not a remake of the Bundesbank and the Euro is less of a “hard currency” than its architects could have ever envisaged a decade ago,” Rosenberg says. “Now there is talk that the ECB is contemplating a quantitative easing plan.”

“Contagion risks” from the Greek financial crisis loom, “and there are simply not enough trees on the planet that can provide enough paper currency to backstop countries like Portugal and Spain,” Rosenberg says.

“And let’s not forget about Italy — its public finances are less dire but still fragile”— all of which make this a great time to buy gold.

Gold prices fell for a second day Wednesday as a possible downgrade to Portugal's debt added to troubles for Greece and the euro, which slid further against the U.S. dollar.

Near midday Wednesday, U.S. gold futures for June delivery on the Comex division of the New York Mercantile Exchange were quoted at $1,166.30, down from Tuesday's settlement price of $1,169.20.

Credit rating agency Moody's put Portugal's credit rating on review for a possible downgrade, pointing to the "recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges."

Gold prices had been rising earlier Wednesday as bargain-hunters bought the precious metal after gold's selloff.

Gold is an appealing investment during times of financial crisis and currency debasement as a form of money that doesn't lose value. But investors' need for cash beat out bargain-hunters and gold prices fell.

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