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Why
investors, fearful of currency depreciation, have turned to gold...
Not so long
ago, everyone seemed to
think Greece was about to leave the Euro.
Well, it
hasn't. Yet.
And remember
when Spain's government was only
days away from requesting a formal bailout?
Well, it
hasn't. Yet.
Never
underestimate the power of Europe's politicians to press the slow-mo button on the single currency car crash.
But how long
can all this go on? Things are getting worse, not better. As FT
Alphaville reports, Greece is facing another
potential default next week, while Spain's auction of 5-Year bonds this week
was described by one trader as "awful", with a wide range of bids
suggesting little market consensus on how the bonds should be priced. Reuters
reports that this was the first time in 18 months that Spain has tried to
sell longer-term bonds.
Take a look
at the following chart from the Spanish Treasury,
showing the maturity profile of Spanish government debt. See the big spike
for 2013?
Spain's debt
is piling up at the short end. In a video recorded earlier this year, BullionVault founder Paul Tustain likens this phenomenon to a
train wreck in the bond markets, with government debt piling up against
the buffers until that government is either forced to default, or a
devaluation of the debt is orchestrated with central bank assistance - for
example with interest rates held below inflation for a sustained period.
Of course,
devaluing debt means devaluing currency itself. This is where gold comes in.
Many
investors worry that their currency will fail to hold its value. Many of
those have turned to gold. At the time of writing, gold in Euros is within
1.5% of its all-time high set last month. For gold priced in Dollars, the gap
is closer to 10%, from a high hit over a year ago.
Why the
discrepancy? Because the crisis is more intense in Europe, that's why. The
value of the Euro is under far greater scrutiny.
Many
investors believe the Dollar will one day face a similar test. Some of those
have added gold to their portfolio. To find out why, set aside twenty minutes
or so and watch Paul's
video from the beginning.
Looking to buy
gold? Visit BullionVault...
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