Eveillard:  “It’s interesting because in Europe things calmed down in the past year, particularly in terms of the yield on Portuguese paper, French paper, etc.  This was in the aftermath of Mario Draghi saying, ‘We will do whatever it takes.’

So the ECB telegraphed to the world that they would step in if necessary and buy the sovereign paper of countries such Portugal, France, Greece, or others.  This was a move to cap yields.  In a sense Draghi was successful because he didn’t have to buy any paper because the investors stopped panicking, at least so far....

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“But what troubles me, and why it could be the calm before the storm, is the fact that the original flaw of the euro is still there.  How can you have a common currency without having one European government?  This has prevailed for 10 years, but things work until they don’t work.

And the problem for the euro is that today, not the Italians, French, Germans, or the Greeks for that matter, nobody wants a European government.  So you still have the  problem of the euro existing, but at the same time each country is making its own decisions.  These are decisions having to do with government spending and taxes in particular.

A second problem for Europe going forward is that in the countries which have been suffering for several years now, you may well see increased social upheaval.  The people may say, ‘Enough is enough, we don’t want to suffer anymore.’

Also, there is the great uncertainty that after listening to Mr. Draghi and believing that the ECB would do ‘whatever it takes,’ investors might start worrying and selling the paper of various countries in Europe.  There is even rising skepticism regarding French paper, and maybe they are right for all I know (laughter ensues).  I’m French myself, but I was in France several weeks ago and things are not going well, there is not doubt about it -- both from an economic and from a political standpoint.

Again, I want to reemphasize that if the people in Europe decide enough is enough, you could have a real problem there.  This may not be an Egypt-like problem -- taking to the streets is one thing, being killed if you take to the streets is another thing.  But it is very worrisome the fact that there may be this increased social upheaval, and also that countries may be unable to finance themselves if yields get out of control.  This all goes back to the harsh reality that the original flaw has not been corrected.

What’s happening in Russia is also worrisome, there is no doubt about it.  Some investors are saying, ‘I will not buy something, a security or an asset in Russia, as long as Mr. Putin is in charge.’  The reason for this is because it doesn’t matter whether you are a foreigner or a local, if you buy an asset and you think you own it because you bought it, well, you own it until Mr. Putin decides that you don’t.”

Eric King:  “Gold has obviously come off the lows, and I’m just curious what your thoughts are as to where we are at this point in the bull market in gold?”

Eveillard:  “It raises the question of physical gold vs paper gold.  By paper gold, I don’t just mean the futures market where you have short-term traders using tremendous leverage, but I am talking here about GLD.  We have seen people trading in-and-out of GLD in large quantities.

Then, you have the physical market where there is an appetite for gold by central banks, at least central banks in the East, as well as on the part of individuals and institutions who view gold as money.  Also, you have the matter of quantitative easing, which so many countries in the world have engaged in. 

Well, it’s easy to get into quantitative easing, but it’s not easy to get out.  The exit will prove to be much more difficult.  Indeed, there are plenty of doubts in my mind about whether the Fed is in fact serious about beginning to exit quantitative easing in September.”

Eric King:  “You brought up the physical market, Jean-Marie, and John Hathaway was recently talking with KWN about how tight the physical market is.  He was also discussing the fact that we are seeing unprecedented events taking place in the gold market.  I’m curious as to what your thoughts are on this supply crunch we are seeing in the physical gold market?”

Eveillard:  “I like John, and I also like his writings.  And John may well be right that this is an indication that there are buyers of physical gold and there are just not that many sellers.  After all, this is the kind of thing that big bull markets are made of.”

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