Gold and silver gain as bond markets get a taste of the future
Posted on 09 November 2011 with 5 comments from readers
Gold and silver prices hit six-week highs as the eurozone sovereign debt crisis took more twists and turns with the Greek elite unable to decide on a new prime minister and the Italians seeing theirs resign.
Italian bond yields are now perilously close to the seven per cent danger level at which national debt becomes unserviceable, as has already happened in Greece.
Italy too big to save
Italy is the third largest economy in the eurozone and there is not a sufficient mechanism in place for market intervention to counter a collapse in its bond market.
It has also been revealed this week that two of Europe’s largest banks have been dumping bonds from the beleaguered states.
Three years ago ArabianMoney publisher and editor Peter Cooper wrote a book ‘Dubai Sabbatical: The Road to $5,000 Gold’. Any reader of that book would know what is coming next.
Gold and silver prices have doubled since then but they are going much, much higher. And the final crisis is a break up of the worldwide bond market.
This is an inevitable consequence of the market manipulation of the past three years. Interest rates that are kept artificially low will always rise back to their true price level over time.
They do so by breakages in the weakest links, the countries with the highest debt burdens, as money markets gradually re-price to reflect real risk.
The contagion or spillover is happening from Greece to Italy, going directly for the jugular of the eurozone economy rather than bothering with Spain first.
The euro is devaluing and institutions and individuals are increasingly pulling out. Some are starting to buy precious metals as money that cannot be devalued.
Contagion
This is a ball now rolling down a hill. But where does it stop? France? The UK? Or will it cross the Atlantic or Pacific Oceans to the US and Japan.
So where do you put money to keep it safe? Clearly not bonds. Real estate suffers too as interest rates rise, so do equities although relatively less so.
The currency of last resort is always going to be gold and silver and that is where you want to be as a bond crisis blows up.
5 Comments posted by readers:
Rating expert Sean Egan said Tuesday on CNBC that the euro zone needs between 2 & 3 TRILLION dollars of money to stop the debt collapse. He said that money printing is now the only practical solution because there is no way they can find that amount of loans of real money. He said the politicians won’t allow it, but the market will inflict more and more pain, until they do start the money printing.
I don’t agree that “the only practical solution” is money printing! In fact, I don’t agree it’s a solution.
It’s no longer a question of “kicking the can down the road” because the can has changed into a boulder. Kick the boulder and you damage yourself!
Money printing devalues the currency more and more, and makes bullion investment more and more worthwhile as the currency moves towards hyperinflation, and that’s when the majority of people lose confidence in it.
Frankly, we’re doomed! It’s the end of an era, in my opinion. An era, which arguably began with the Roman emperor Augustus or with the first central bank in the 1690s in England.
@john mark……i do not think bill thinks printing is a solution…….it is a reaction…the only one they have other than facing the inevitable(which they will not do)…it is WHY gold goes to 5000+ was his point.
bill knows printing is very bad but inevitable.
The funniest thing with this crisis is tha it has been known since the last 3 years.A debt problem cannot be solved by raising further debt without having any identified source for repaying.The can has now become a boulder and would become a massive mountain in due course because even now the solution being found is ways to raise more debt.The so called experts are not in favour of austerity measures.In fact if these countries had lived within their means they would not have put the whole world to danger.
Italy is undoubtedly in the “too big to save” category. Rome is burning, and there’s total panic in Italy (as well as at the ECB and EU!).
But that doesn’t stop Keynesian fools from coming up with all sorts of ridiculous suggestions that can’t possibly work; so the wood will continue to rot.
For an excellent commentary on this topic (as well as suggestions from Keynesian fools), read Ambrose Evans Pritchard’s column in today’s Telegraph.
http://www.telegraph.co.uk/finance/financialcrisis/8880306/Europe-pushes-Italy-into-the-abyss.html