Has the euro reached a tipping point that will benefit gold and silver prices?

If you looks at the history of past financial crises then there is always a tipping point for gold and silver. Something happens to tip the balance suddenly in favor of precious metals.

The failure of the German bond issue yesterday might well come to be seen by future historians in this light. For that means the eurozone sovereign debt crisis has gone right to the core. The idea that this gradual escalation of global interest rates can be confined to smaller nations is shattered.

Higher interest rates

When you have higher and higher levels of debt that is what always happens to interest rates. The lenders will want more interest payment to compensate for increased risk and that should dampen demand for more debt until the lender is healthy enough to handle it.

But since 2008 this process has been forcibly manipulated by the Fed and other global central banks, and interest rates held down. This resulted in even higher levels of debt that have become unsustainable first in the peripheral countries of the eurozone.

Now we are belatedly realizing that when nations borrow too much there is a problem on the otherside for the lender when they cannot pay the money back. More immediately the impact is on the euro itself as a currency now in crisis because its bonds cannot be sold.

What began as the eurozone sovereign debt crisis now morphs into a crisis for the euro which is devaluing against the dollar. The question for gold and silver investors is whether all this capital flow will go into the dollar and its many pegged currencies like the UAE dirham, for example, or whether a part of it will now go into the very much smaller gold and silver markets.

There is probably a tipping point for the euro:dollar rate at which money flows far more heavily into precious metals. There is good logic to this. For what is happening to the euro today could happen to the dollar, UK pound and other currencies tomorrow.

Contagion link

After all the same heavy debt burdens and budget deficits are weighing on the US and UK. Just as Germany was reminded yesterday the bond markets are all linked and money shifts in and out like waves on a beach.

Besides the fundamentals of huge debts point to high and not low interest rates if market forces are allowed to operate.  And the central banks are losing their grip as the German bond auction illustrates.

Where do investors park their money if the entire global financial system is cracking apart under excessive debt accummulation? All the past historical examples that we have point to gold and silver as the currencies of last resort and these markets are so small that prices will go very much higher.