Gold the ‘counter to all currencies'

Events in Europe point to yet another worsening in the Sovereign debt situation and a corresponding impact on banks. Gold now seems to be beginning to rise in the Euro AND the dollar.

BENONI, SA - The events of the last week and in the Eurozone are all pointing towards a severe increase in the tribulations of the Eurozone Sovereign debt situation and, by extension, its banking system. Talk of a Greek exit, because it has failed to meet the structural reform requirements, is now public, at senior German levels.

We are of the opinion, that plans for the resurrection of the Drachma are now complete. When it happens it will come at a weekend and be a ‘fait accompli' on the Monday morning following.

But of greater importance is the effect that will have on Spain and Italy and their debt positions. The sag in confidence when it happens, will likely propel them into a bailout scene too. The euro will then either tumble rapidly, or the Fed will step in with sufficient swaps to hold it up. That will undermine the dollar as well.

As you can see in the last few days, gold has begun to rise in both the euro and the dollar. If this continues, it will mark the separation of gold from the euro's action against the dollar. Once this is established gold will then be a "counter to all currencies". This will reflect the rising global economic and monetary instability and uncertainty. But it still has some way to go to establish this behavior as a new pattern for the longer-term.

The European and U.K. economies are adding to the stress now, with German business confidence falling, the U.K. now in the worst recession for 50 years as its GDP drops 0.7% in the last quarter and across the pond in the U.S. Timothy Geithner, U.S. Treasury Secretary tells us, "A wave of tax increases and billions of dollars in automatic spending cuts (due in January 2013) would cause "a lot of damage" to the fragile [U.S.] economy."

Silver is holding above $27 and looks like staying there right now. We do expect silver to break away from currencies alongside of gold in the near future.

Julian D.W. Phillips for the Gold & Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com