Eurozone Failure Could Send Shockwaves Around World Akin to Soviet Union

Gold is trading at USD 1,770.10, EUR 1,299.50, GBP 1,110.30, CHF 1,599.20, JPY 137,360 and CNY 11,200 per ounce. 

Gold’s London AM fix this morning was USD 1,766.00, GBP 1,109.09, and EUR 1,299.01 per ounce.

Yesterday’s AM fix was USD 1,780.00, GBP 1,112.50, and EUR 1,300.41 per ounce.


Cross Currency Rates

Gold is 0.3% lower in US dollars and 0.5% lower in euros. Gold again experienced weakness due to volatility and weakness in global stock markets. However, this weakness is likely to be temporary again and growing fears over the stability of Italy and the euro zone will support safe haven gold.

Sharp falls in equities and commodities may have again forced some investors to sell profitable gold positions to cover losses elsewhere particularly in stocks which fell sharply in the US and Asia but have stabilized in Europe.

Gold fell 0.8% in dollar terms yesterday but was higher in most currencies especially the euro.

The escalating crisis has prompted EC President Jose Manuel Barroso to issue a stern warning of the dangers of splitting the zone. EU sources told Reuters that French and German officials had held discussions on just such a move. 

Merkel has called for changes in EU treaties and French President Nicolas Sarkozy advocated a two-speed Europe in which euro zone countries accelerate and deepen integration while an expanding group outside the currency bloc stays more loosely connected — a signal that some members may have to quit the euro.

The failure of the Eurozone and the European monetary union looks increasingly likely. This has incredible political, economic and monetary implications for the world and could lead to shockwaves akin to or surpassing that seen after the collapse of the Soviet Union. 

Given the scale of the crisis, we continue to amazed at the lack of animal spirits in the gold market – both from media coverage and from public participation. 

The majority have no idea of the ramifications of these momentous geopolitical developments. The public knows the developments are negative but most are resigned to their fate and many are like deer in the headlights failing to join the dots and realize the ramifications for their investments, savings and financial wellbeing. 

While demand in Asia has fallen from the very strong levels seen recently – demand continues and Chinese New Year should see Chinese demand pick up again in the coming weeks.

Western investment demand continues as seen in increasing allocations to the SPDR trust.

Holdings of the SPDR Gold Trust added 3.025 tonnes from a day earlier to 1,267.153 tonnes by November 9, the highest since late August. The ETF saw an inflow of nearly 24 tonnes so far this month, after an 11.6-tonne gain in October and a fall of more than 30 tonnes in the previous two months, showing reviving interest in gold from investors.

As we have said for some time ETF buyers are primarily long term diversifiers in nature and not speculative ‘hot’ money likely to flee the gold market on signs of weakness. Much of the ETF buying is from institutions including pension funds who are diversifying their portfolios with very small allocations to the gold trust.

Bullion dealers in western markets continue to see demand but demand is nowhere near the levels seen at the height of the Lehman crisis or even towards the end of gold’s sharp rise to over $1,900/oz in August.

The public is nowhere near the gold market and the majority of people in the western world could not tell you the price of gold today – let alone how to buy it. The mainstream, non financial specialist, media continues to cover gold sporadically at best. 

Price falls tend to be headline news rather than price gains.

Much of the buying we are seeing is from existing precious metal buyers choosing to sell existing precious metal type investments such as ETFs and digital gold in order to own physical bullion. 

Given the significant counter party risk seen in the world, as graphically illustrated by MF Global, more buyers are choosing to take delivery or opting for personal allocated accounts with legal title to the bullion which is in their name 

This position is understandable given massive counter party risk due to the risk of corporate, banking and national bankruptcies. 

For breaking news and commentary on financial markets and gold, follow us on Twitter.

SILVER 
Silver is trading at $33.91/oz, €24.91/oz and £21.25/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,623.20/oz, palladium at $643.50/oz and rhodium at $1,525/oz. 

NEWS
(Reuters)
U.S. gold falls 2 percent as Italy fear spooks markets

(Bloomberg)
Gold Drops a Third Day as Worsening European Crisis Stokes Dollar Demand

(Reuters) 
Italy at breaking point; fears grow of euro zone split

(Reuters)
Exclusive: French, Germans explore idea of core euro zone

COMMENTARY
(Zero Hedge)
Game Over? Reuters Says Germany, France Exploring Idea Of Core Euro Zone, End Of Existing Structure

(Gonzalo Lira)
Inflation, Hyperinflation and Real Estate

(Christian Science Monitor)
Printing Money Won’t Solve a Global Depression

(King World News)
Nigel Farage – Where is Europe’s Gold?

(Financial Times)  
Financial Times Deutschland joins hunt for Germany’s gold

 

 

Mark O'Byrne

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