Flight To Gold And The Dollar Due To Europe’s Mistakes

May 17, 2010 | By | Reply More

Europe’s misfortunes, mistakes and denial of the European Treaty’s condition that no member state should be responsible for the debts of a fellow state have compounded to put the single currency in serious jeopardy with a growing risk of a break up.

There are arguments that for Portugal, Italy, Greece and Spain (PIGS) abandoning the Euro may be in their shorter-term interests as their debts inexorably mount. Add the British pound to this poisonous currency cocktail, it then seems hardly surprising that a flight to gold and the US dollar by anxious European investors desperate to preserve their wealth is in full cry.

With only Germany industrious and economically powerful enough to sustain some semblance of value in the Euro it is disturbing to note that Angela Merkel, the Chancellor, has softened her stance on the Greek situation and, by inference, will have great difficulty in resisting the almost inevitable demands for bailout loans from the debt ridden Southern Euro Zone states.

Spot gold has now surpassed its record price in both the Euro and the British pound.
As for the dollar reaping the benefit of Euro unease, well that begs a question.

  • How long before the dollar catches up with the contagion of debt sweeping Europe?

Investors all know how inheritantly weak the dollar is in the worldwide currency mix with debts on much the same scale percentage wise as those of the PIGS. In our view, sooner rather than later, the dollar will lose its present and temporary status as a haven for disenchanted investors and no amount of interference from the federal authorities will do more than slow down its eventual demise.

More worrying still, there is every likelihood that the knock – on effect will result in the Yuan, the Ruble, the Loonie, the Aussie dollar, the yen and every other significant fiat (read paper not backed by gold) currency losing great swathes of value. Then we have runaway inflation.

No ifs or buts, it is the only plausible, viable scenario, any other is pure fantasy.
In the meantime gold, silver and platinum look like being the only options for preserving wealth in the face of the coming meltdown of the world’s currencies.

That is not to say that there will be no opportunities for short term gains by going long the dollar in the next weeks or months, but get caught on the wrong side of the trade when the dollar inevitably crashes can result in wipeout.

Better be long gold or silver and wait for the rush to become an avalanche of investors, hedge funds, banks et al pushing the price up to the heavens.

As always, timing is the key.

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