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.
-- Posted Wednesday, 9 November 2011 | Digg This Article | Source: GoldSeek.com
comments powered by DisqusPrevious Articles by Peter Cooper About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
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