In the last week, gold and silver prices fell even as George Soros himself commented that conditions for gold looked perfect. Why? A look around at virtually all markets from Shanghai through Europe and back to the States fell. The media pointed to the potential for interest rates to rise, but that is an insufficient explanation when one considers that the declines were in the region of 5% across all the board. An event that touched the very structure of the global financial system occurred and is still happening right now was, we believe, the cause of the falls.
While the sovereign debt crisis in the Eurozone has been with us for some time now, it has developed into a more serious concern in the last week. The President of the Eurozone himself said that both the euro and the Eurozone were in danger of collapsing. Project this statement forward to an actual collapse, what would happen if it did collapse? What would happen if the Eurozone fragmented, or if Germany departed or if the southern nations of Greece, Portugal and Spain were booted out of the Eurozone? Chaos would reign in currency markets and amongst the banking system. The web-like nature of the global banking system would threaten a spread of the banking and sovereign debt crisis that would ravage investors in many markets.
So, what happened when gold and silver corrected nearly 20% a year and more ago In the last week, gold and silver prices fell even as George Soros himself commented that conditions for gold looked perfect. Why? A look around at virtually all markets from Shanghai through Europe and back to the States fell. The media pointed to the potential for interest rates to rise, but that is an insufficient explanation when one considers that the declines were in the region of 5% across all the board. An event that touched the very structure of the global financial system occurred and is still happening right now was, we believe, the cause of the falls.
While the sovereign debt crisis in the Eurozone has been with us for some time now, it has developed into a more serious concern in the last week. The President of the Eurozone himself said that both the euro and the Eurozone were in danger of collapsing. Project this statement forward to an actual collapse, what would happen if it did collapse? What would happen if the Eurozone fragmented, or if Germany departed or if the southern nations of Greece, Portugal and Spain were booted out of the Eurozone? Chaos would reign in currency markets and amongst the banking system. The web-like nature of the global banking system would threaten a spread of the banking and sovereign debt crisis that would ravage investors in many markets.
So, what happened when gold and silver corrected nearly 20% a year and more ago, could happen to a lesser extent again. The result then was that investors withdrew to the sidelines. But this time, we’ve seen a repeat of this but temporarily and only to allow around a 5% fall in precious metal prices. Knowing what happened following the last correction, investors were able to react faster than before.
Right now, the recent rescue of Greece may not be as convincing as many hoped for as their tax revenues have fallen well below budget as tax evasion in Greece [rife for decades], now taints the success of that rescue. Ireland, although small, is unhappy to let go of any sovereignty, (even financial sovereignty) is hoping the EU and IMF will bailout their banks, who have yet to fully assess their property losses. This refusal of support could endanger the Eurozone itself. Sadly the very nature of bailouts in Europe and even the resolution of global currency problems appear to be more difficult than most thought.
Why?
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