When there is a crisis of confidence in a currency then it is the precious metals that gain. Visit any city in Germany or Austria this summer and there is a gold shop in a prominent location.
They have not quite replaced the banks yet. But the message is there for anybody with eyes to see. It is noticeable too that this is not just a phenomenon in the peripheral euro zone but in its teutonic heart.
Spanish Interest Rates
Then again you certainly are getting good rates on your money in Spain and Italy these days, let alone Greece. Spanish bond yields have passed the danger point of 7%.
This is what happens when debtors become scared about not getting repaid. Interest rates go up. No matter that the ECB has set official rates at a record low.
You can only wonder how much further this trend will go before it ends. The trend is always the investor’s best friend but so often missed for the surrounding noise.
Can anybody really see a solution in sight to the euro-zone sovereign debt crisis? Does one exist? The requirement is for a federal Europe that is still a planner’s dream and even then this is no magic solution.
Besides, US observers who think Europe has it all wrong and that they have the debt problem cracked are among the most deluded of our time. The US also has a temporary solution based on continuing to borrow money and that is also coming to the end of the road.
For what is happening in Spain will also hit the US in the future. The central banks can only hold interest rates low as an emergency measure, eventually market forces will take over, crush the bond market and raise interest rates.
Historical precedent
You would almost think this is stating something controversial. It is simple stating the blindingly obvious.
History also tells us that when confidence in paper money fails, that is to say bank notes and bonds, it is to precious metals that the population turns. This process happens very gradually and then there is a crunch, a crash and a reset of valuations.
