evans prichard says

The London Daily Telegraph's master of gloom - Ambrose Evans-Pritchard - cites four reasons for gold's recent demise. Firstly, there is the catch-up weakness of world economies, as described above (Evans-Pritchard notes that the US is the only G7 economy that is not yet actually in, or on the cusp of a recession).

Thereafter he notes that gold has fallen as the commodity super-cycle has hit the skids, driven by global economic weakness, and that the inflation spike of early 2008 (food and oil) was driven by the "loose money" of previous years and was thus "vastly exaggerated" in the OECD economies. Those economies make up 60% of the world economy.

Finally, Evans-Pritchard suggests, no one could really care less about Georgia.

"So have we reached the moment when gold bugs must start questioning their deepest assumptions," he asks. "Have they bought too deeply into the 'dollar-collapse/M3 monetary bubble' tale, ignoring all the other moving parts in the complex global system?"

The good news is, he thinks not.

Evans-Pritchard has long been a doomsayer on the survival of the European Monetary Union. When the member currencies were fixed - in perpetuity - in 1995 (prior to the actual launch of the "euro") there was monetary convergence amongst economies. But they have diverged ever since. There is now a major rift between the big export economies of the north (particularly Germany) and the big current account deficit economies of the south (Spain, Greece). The south is now massively dependent on capital inflows from the north to plug the current account gaps. But these flows have stopped.

The central banks of Asia, the Middle East and Russia have been shifting their foreign reserves away from traditional reserve currency investment (US dollar) and into euro - as a supposed "twin pillar" - and thumbed their noses at the Americans on the way. But as Pritchard-Evans explains, the euro is not the dollar.

The euro has no European government, or tax, or social security system behind it. Each member remains sovereign in their own right (and each hates the other). "We are about to find out whether the EMU really has the levels of political solidarity of a nation," he suggests, "the kind that hold's America's currency union together through storms".

Suffice to say, he thinks not. Evans-Pritchard is awaiting European political unrest, in the face of growing unemployment across the continent and impotent monetary control out of Frankfurt. He is also awaiting a European "Bear Stearns". But while the Fed had the power to save Bear Sterns, the ECB is prohibited from conducting bail-outs. All the European Central Bank can do is opt for a weak euro policy, or face destruction.

We will soon see a "race to the bottom" between all major global currencies, Evans-Pritchard suggests. Both the "pillars" of the global monetary system (dollar, euro) are unstable, "infested with the dry rot of excess debt".

And that leaves only one "currency".

"Gold bugs," says Evans-Pritchard, "you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder".