Wednesday, July 13, 2011

The Euro Crisis: Gold Sends a News Message

The euro zone crisis is escalating into a serious problem.

If it wasn't already.

But then you may not be hearing this on your local news channel. In New Zealand, we are hearing of the 'great' catastrophe of the UK phone hacking scandal. Why is it these 'stories' are deemed important, yet a currency crisis of major proportions, that may affect us all,  is given next to no coverage.

May be this sort of bad news doesn't engender advertising support for news feeds, or may be there are no real journalists able to disseminate the details.

There are huge forces at work in this euro zone crisis, and the euro zone leaders are battling to contain it. Even the new head of the IMF has let slip that Greece will probably default. The unity shown just last week, is faltering. If it does falter and the people revolt, then watch the quick demise of the European dream. Each country will retreat from the bunch to secure their own nation states.

Gold sees these happenings and reacts accordingly. Gold is a safe-haven asset. It is the reserve currency of last resort and lasting value. It is a safe-haven from the demise of unstable monetary systems.

You see, the European elite have had this need to unify in order to create a power block capable of competing with the USA and Russia. Monetary union was the foundational policy to see this happen ten years ago. But the big mistake was that the rules of monetary union applied to monetary policy only, and did not include fiscal policy and union.

This means that each nation that joined the union could still decide their own fiscal policies, thereby creating a single currency with no cohesion politically. Ireland was the first to show this folly by being allowed to guarantee the deposits of their banks during the 2008 crisis and beyond.

So now it is Italy's turn in the spotlight. The tried and tested (and failed) policies that led to a week of confidence after the Greek crisis, will not be sufficient to allay the fears of Italy's bondholders. You can smell the fear of the credit default swap holders from New Zealand. A $1.4 trillion debt is not easily dealt with. And the market is sensing the end game. Gold is up $85 in 10 days.

Italy is even more problematic than Greece. Ever been to Rome and tried to make sense of the chaotic roads? Well, there just seems to be this Roman chaotic thing going on in Italian politics as well. In the 1980s, it seemed Italy had a new governmnet every week. Now with Prime Minister Silvio Berlusconi's one man bunga-bunga mess, Italy appears doomed to default. They have recently put through a $40 billion austerity plan, but try killing an elephant with a wet bus ticket. Ain't gonna work.

Moreover, when Banks are leveraged 1:20 (for every $1 deposited, $20 has been lent out) worldwide and these same Banks have not dealt with their 'vacant' balance sheets from 2007 and beyond, then a contagion is at hand. France, for example, is owed $511 billion of Italy's debt. And the tentacles of debt will not stop in the Riviera, they will reach right into a Bank near you; and may be your money.

Now that would be a hacking scandal to make the news.

Gold in New Zealand dollars: $1909.05 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $54.08 per oz
Previous all time high: $48.58
per oz
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The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
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