Contagion Spreads To The Heart Of Europe

Despite the lack of agreement over the latest (insignificant) iteration of the Greek bailout, what has really shaken the Eurozone to its very core was the new rating downgrade for France, coming on the heels of headlines calling France the “timebomb at the heart” of the EU, it means that sovereign debt concerns are slowly working their way from the periphery to the euro-core.

Officials rushed to downplay the impact and importance of the downgrade. However, France is the second largest contributor to the European bailout mechanism (ESM) and hosts one of the largest sovereign debt markets in the world. The number of solvent countries that could serve as a safe haven can now be counted with one hand, and since many of them seem committed to tying their fates to their not-so-prudent neighbours, savers are left with a lot of uncertainty and few solid options to protect themselves against the ever-increasing probability of a currency collapse or a break-up of the eurozone.

The price of gold has reacted accordingly to the increase rate of euro-risk, it reached €1,350 per troy ounce, not far from all-time euro-highs. We could very well see new highs before year end. Silver has also been strong recently, standing at over $33 per troy ounce, and even some well known silver perma-bears have, to our astonishment, been contemplating estimates of $50 per ounce in 2013.

US bickering over the “fiscal cliff,” an unfortunate phrase coined by Ben Bernanke, has prevented the EUR/USD from weakening too much. It really is a race to the bottom as all major world currencies struggle to print faster than their neighbours. Unfortunately that is an almost inevitable development when you base money on political whim, as Ron Paul explains in this recent podcast with GoldMoney’s Andy Duncan.

The eurozone’s troubles should have served as a warning for US politicians. The US dollar’s position as the world’s reserve currency gives them a few months, maybe even years of buffer before the popping of the bond market bubble reaches Treasuries. That time could have been put to good use balancing the budget, something that Ron Paul was the only presidential candidate to even propose. Creditors are normally very understanding and forgiving with debtors that show a budget surplus, not so much with those that run trillion-dollar deficits.

What is their plan to get out of this? In the words of Terry Pratchett: Making Money. However, in the absence of magic, it is probably better to rely on solid, real gold.