Portuguese Bonds in Melt Down – Euro Gold Rises to €1,056/oz – 3% From Record Nominal High on Contagion Risk

Gold is trading at $1,515.06/oz, €1,055.42/oz and £945.73/oz. 

Gold is marginally higher in most currencies today and has risen a further 0.55% against the euro to EUR1,056/oz. It is just 3% from the record nominal high in euros at €1,087/oz due to the risk of contagion in the Eurozone.

Gold in Euros – 1 Year (Daily)

The Moody’s downgrade of Portugal has led to a brutal sell off in Portuguese debt in morning trade which has seen Portuguese 10 year bond yields surge from 11.02% to 12.23%. Yields on Portuguese two-year notes soared 212 basis points to over 15.14 percent. There is increasing speculation that another downgrading of Ireland is imminent and Ireland’s 10 year yield has surged to over 12%.

Portugal received a $112 billion loan package only two months ago. It was due to sell 1 billion euros of treasury bills today but     the Portuguese government debt agency IGCP said it sold 848 million euros of bills due in October.

Portugal is a reminder that Greece is just the tip of the iceberg and Portugal, Ireland, Spain, Italy, Belgium, Hungary in Europe and the U.S. itself face similar challenges, of greater and lesser degrees.

Cross Currency Rates

The risk of contagion in the Eurozone is increasing by the day which poses obvious risks to the euro currency and the global financial and monetary system.

Investors are increasingly concerned about the risk that contagion poses to assets previously considered risk free such as U.S. Treasuries and even German bunds. Germany may ultimately have to pay towards the massive and growing costs of the deepening eurozone debt crisis.

PORTUGAL GOVT BS 10YR NOTE

Gold’s safe haven status will soon again be realized and universally accepted and constant talk of a bubble will be seen as misguided.

This is assured as we live in an era where assets previously considered risk free, such as U.S. treasuries and German bunds, are increasingly being questioned. 

If risk-free notes are no longer without risk, it will reverberate throughout all markets (bonds, equities, currencies, gold etc) globally, creating an increase in relative risk levels and a consequent adjustment of investment values.

Paper assets and fiat currencies look set to continue to fall against the finite and immutable currency that is gold. Especially as the risks of a global currency war and global competitive currency devaluations remains real. 

Continual short term panaceas by misguided policy makers doing the bidding of powerful banks has delayed the day of reckoning. 

However, there is no such thing as a free lunch and the failure to tackle the root cause of the problem, which is insolvency through too much debt, means that the day of reckoning will be of orders of magnitude greater had more rational policies been implemented.

Gold buying remains steady but surprisingly subdued given the scale of the crisis. There remains a fundamental failure to comprehend the scale of the crisis and a blind belief that the world will return to its pre crisis state soon. This fails to appreciate that the pre crisis state of the world, with massive and unprecedented levels of debt in the U.S., the U.K. and most western economies was anything but normal.

CFTC GOLD  NET LONGS 

Animal spirits are low and very cautious as seen in CFTC data showing that there has been a very significant liquidation by weak longs. The scale of recent liquidation is indicative of a market low and suggests we have made or are on the verge of reaching lows, basing and targeting new record nominal highs in the coming period of seasonal strength.

SILVER 
Silver is trading at $35.69/oz,€24.86/oz and £22.28/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,733.65/oz, palladium at $770/oz and rhodium at $1,925/oz. 

NEWS
(Reuters Africa) 
Gold hovers near 1-½ week high on Portugal rating cut

(MarketWatch) 
Gold futures extend gains in electronic trading

(MarketWatch)  
Gold ends with a gain of more than $30 an ounce

(Wall Street Journal)
Comex Gold Reclaims $1,500, Silver Surges

(TheStreet) 
Gold Spikes On Greek Debt Uncertainty (GC in The Street)

(Financial Times)
Eurozone turmoil raises doubts over Bunds haven status

COMMENTARY
(Chris Martenson)
Eric Sprott – Paper Markets Are A Joke: Prepare for Bullion Prices to Go Supernova

(Time World) 
Europe’s Elusive Gold Reserves: Are Greece, Portugal Sitting on Billions of Dollars?

(The Voice of Russia)
There is no Gold Rush in Russia

(King World News) 
Turk – Commencement of QE3 to Send the Dollar Into Oblivion

(Zero Hedge)
Paul Farrell’s 7 Reasons Why America Needs A "Good Depression" Now…Or Face A Great Depression Later

(YouTube) 
U.S. Government Debt and You

Mark O'Byrne

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