Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold Stocks Vs Gold – Not A Good Bet - 15th Dec 19
Silver Price Remains in 'Corrective Downtrend' - 15th Dec 19
Amazon - Snow Falling Effect Christmas Lights Outdoor Projector Review - 15th Dec 19
How to FIX Dirty Disk Windows Hard Drive Volume Error 0X80071AC3 - 15th Dec 19
Raffaele Riva and AUREA Are Breaking New Ground in Financial Services Across Europe  - 15th Dec 19
Canadian Cannabis Stocks CRASH as Canopy Growth Hits a Dead End - 14th Dec 19
Retail Sector Isn’t Dead, and These 6% Dividend Paying Stocks Prove It - 14th Dec 19
Top 5 Ways to Add Value to Your Home - 14th Dec 19
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Rising Eurozone Yields Will Push Gold Towards the Monetary System

Commodities / Gold and Silver 2012 Jun 19, 2012 - 08:02 AM GMT

By: Simit_Patel

Commodities

Best Financial Markets Analysis ArticleA trend I've been focusing on lately are the signs we are seeing of gold returning to the monetary system. Consider the signs:

1. Central banks continue to increase their purchases of gold, having become net accumulators of gold since 2009. The central bank of Kazakhstan purports to have 20% of its reserves in gold.
2. Banking standards from Basel III, an international banking institution, may be changing so as to give banks that hold gold a higher score.
3. The European Redemption Pact, an agreement to consolidate excess debt in the Eurozone, is allegedly discussing the idea of issuing Eurobonds that would be partially backed by gold.
4. In the United States, states like Utah are moving to restore gold's status as an officially recognized form of money.


What all these events are telling us is that faith in the fiat money system of the world, in which all money is loaned into existence, is breaking down -- as it has repeatedly done so many times before when such monetary systems were attempted. The market does not trust this type of money, and is choosing gold instead, as gold is a form of money whose supply is difficult to control and bears no intrinsic relationship to debt.

And so, one development I'm watching particularly closely because I think it will send gold even further towards the global monetary system are yields on bonds of member nations in the Eurozone. The higher yields go for the individual countries in the Eurozone, the more expensive it becomes for them to borrow from the private market -- and the more likely it becomes that they won't be able to borrow at all. Consider the yields the market is demanding on 10 year bonds from the following nation-states in the Eurozone:

Spain: 7%
Italy: 6%
Portugal: 10.5%
Greece: 26.2%
Ireland: 8.2%

Of course the problem these countries face is nothing new, and has received much attention from the financial media. What is less discussed but perhaps more important, though, is that Germany -- the stronghold of the European Union that is often looked to as the country that can essentially bailout the others and preserve faith in the Euro -- is also starting to see its yields rise. See the chart below.

For a more dramatic effect, let's zoom in to the 30 day chart:

Now, it may be a bit too early to draw any meaningful conclusions from the uptick in the yield on Germany's 10 year bonds; this could just be normal market volatility. But this has been a fairly strong move, and its timing is interesting -- right during the big Greek elections. Is the market worried that Germany will be called upon to pay for Greece's bills? If so, is the implication of rising yields that the market does not view this favorably and will charge Germany for paying Greece's bills?

I think that at some point, if not now, that is the way the market will view the situation. And that is part of why the EuropeanRedemptionPact is so important. If accepted, the plan will basically roll up all the excess debt of these nations into a single bond -- a Eurobond -- that would be managed by Germany. Countries whose excess debt, defined as public debt beyond 60% of their GDP, is rolled up into the Eurobond would need to put up 20% collateral of the amount of debt they shrug off to the Eurobond. And, most importantly, gold would be an accepted form of collateral.

So, what is essentially being proposed as the solution to get the world to lend money to nation-state governments in the EU is if governments are willing to put up gold as collateral. This creates a world in which the governments themselves have an incentive to see a very high gold price, as the higher gold is valued by the market, the less gold they will need to put up as collateral. To put it simply, if the Euro is to remain a viable currency and the European Union a viable supranational government, something akin to a gold-backed Euro is needed. 

Now there is some suspicion surrounding this proposal, with concerns that it is basically a ploy to further consolidate power and gold in Europe. Indeed, I find such concerns to be reasonable and warranted. But what is the alternative? If Greece, or any of the other countries whose yields have exceeded the critical 7% mark -- the point at which the interest burden makes public debt too difficult to take on -- exits the Euro voluntarily or through expulsion, it will need to launch its own currency. And how will it gain the credibility and trust needed to attract capital to store their wealth in this new currency? In my opinion, a currency that is relational to gold and possibly silver is the answer. Indeed, Hugo Salinas-Price suggested that Greece leave the Euro and create a drachma that can be redeemed for silver.

In sum, it is clear that yields on public debt are rising throughout the European Union. Rising yields is creating an inability for member nations to continue borrowing to finance their government spending. Whether this problem is rectified by aggregating debt and backing it with gold or a splintering of the Euro that leads to multiple currencies employing a monetary policy in which the currency is relational to gold or silver.

By Simit Patel
http://www.informedtrades.com

InformedTrades is an online community dedicated to helping individuals learn to trade the world's financial markets. Members earn prizes for sharing their knowledge, and the best contributions are compiled into InformedTrades University, the largest collection of free organized
learning material for traders on the web.

© 2012 Copyright Simit Patel - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules