The Eurozone crisis continues to dominate global markets as events in the region keep changing from one hour to the next. Last week, the Greek drama intensified as Greek Prime minister Papandreou's call for a referendum was cancelled after French President Nicolas Sarkozy and German Chancellor Angela Merkel warned that Greece would receive no more IMF and EU funding until the deal was approved.
Last Thursday, EU President Herman Van Rompuy and European Commission chief Jose Manuel Barroso said that Greece must stick to the terms of the bailout package agreed last week by Eurozone leaders,
Papandreou then called for the Greek parliament to give him a vote of confidence which he received late Friday by a slim margin of 153-145. After meeting with president Papoulias, Papandreou pledged to start necessary procedures and contacts soon to create wider cooperation. It was widely believed that Papandreou would step down as prime minster to make way for finance minister Venizelos. And, before you could blink your eyes, Papandreou is out and Lucas Papademos is in.
As events are changing so quickly, and even after yet another meeting of G 20 leaders in Cannes, France, in which the world's biggest economies agreed to boost the International Monetary Fund's resources to help the IMF tackle the European debt crisis, and despite providing a more detailed mandate following the summit in Brussels, the Eurogroup are now not able to provide the specifics on how to leverage the €440 billion European Financial Stability Facility (EFSF).
In the meantime, Italy has grabbed centre stage of this incredible soap opera. Italian 10-year bond yields rose to their highest since 1997 -- approaching levels regarded as unsustainable -- with political turmoil in Rome threatening to drag a fourth European economy after Greece, Ireland and Portugal into the debt mire.
Gold rallied strongly Monday mainly due to the European economic crisis. Italian 10 year bonds are now at 6.6% which is precariously close to the 7% level that prompted Greece to seek financial assistance from the ECB and IMF. Spot gold hit a new six-week high when it traded at $1795 an ounce and December gold ended the U.S. day session sharply higher near the daily high as a wave of new safe-haven buying entered the gold market. December gold closed up $35.90 at $1,792.00 an ounce. On Tuesday the price of spot gold hit $1798 per ounce in early morning European trade.
The yield on Italy's 10-year bond soared to a record 6.68% on concerns that support for Berlusconi is waning as 2 members of his majority government defected to the opposition last week. Another member resigned on Sunday and 6 others have called for his resignation. Italy's government risks losing ECB support for its debt if it fails to pass the additional austerity measures after ECB council member Mersch said the central bank is free to decide to stop buying Italian bonds if conditions are no longer met.
Italy, the world's eighth largest economy, has now become the main threat to the stability of the 17-country single currency zone, as finance ministers meet to try to find ways of building a firewall around the two-year-old crisis.
In Rome, Prime Minister Silvio Berlusconi defied huge pressure to resign as he struggled to hold a crumbling centre-right coalition together after being forced to accept intrusive IMF surveillance of his economic reforms.
In Paris, President Nicolas Sarkozy's centre-right government announced a new wave of austerity measures, bringing forward a rise in the retirement age, raising some taxes and de-coupling welfare benefits from inflation, in a drive to cling on to France's top-notch credit rating.
The package designed to save 18.6 billion euros in 2012 and 2013 inflicted further pain on voters six months before Sarkozy is expected to seek re-election against a resurgent Socialist opposition, whose candidate, Francois Hollande, is far ahead of him in opinion polls.
Prime Minister Francois Fillon said French public finances had been in the red for 30 years and the time had come to break with the damaging habit of spending beyond its means.
We've got to pull out of this dangerous spiral, he told a news conference.
The ECB disclosed on Monday that it had stepped up purchases of euro zone government bonds, presumed to be mostly Italian, buying 9 billion euros last week in the first few days in office of new ECB President Mario Draghi.
In a surprise move on Thursday the ECB cut the benchmark interest rate by 25bps from 1.50% to 1.25%. At the press conference, Draghi, the new ECB president, stated that 'the on-going tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of the year and beyond'. He added the rate cut decision was unanimous.
More news out last week was the story about the financial giant MF Global. On Monday, The US Federal Reserve suspended doing any business with MF Global. MF Global was a primary dealer, meaning that it is one of 22 firms allowed to trade directly with the Fed and make a market in securities like US Treasuries.
Soon afterward, major exchanges where MF Global does business said that they had suspended the firm from guaranteeing client trades. The Intercontinental Exchange said that the firm’s clients should be limited to trading for liquidation only.
MF Global Holdings Ltd., run by former New Jersey Governor and Goldman Sachs head Jon Corzine, is seeking bankruptcy protection one week after reporting its biggest-ever quarterly loss.
MF Global shares plunged 66% last week. Besides the loss of $186.6 million for the fiscal second quarter MF Global's debt was downgraded to junk status. Credit-rating agencies expressed concern about the firm's $6 billion portfolio of European sovereign debt.
In the meantime, while another financial giant collapses, and demand for gold bullion remains robust and during the last week or so, mining companies around the world reported record earnings. Most miners, in particular South African mining companies have lagged the gold price, but now it looks as they are going to play catch-up.
As governments continue to spend and print more money, your wealth will slowly disintegrate… the purchasing power of your money held on deposit at the bank will become worth less and less. For centuries, gold and silver have acted as a hedge against the declining values of these fiat currencies, and if history repeats again, the outcome will be the same. We are already seeing, governments imposing more controls on the flows of money, increased currency wars, and unstable currencies. To me it seems that the current state of the global monetary system is not improving but deteriorating. And, as I have been stating for years, this is why everyone should own some gold and silver. It is also important to keep some of your assets away from the main-stream banking system and use the facilities offered by offshore banks especially if you are resident in the USA.
Act now, before it is too late. Accumulate a core holding of physical gold and silver in your investment portfolio. And, once again, let me reiterate, physical gold includes gold bullion bars and coins and not gold limited edition medallions. I expect to see gold soon break through $1800 an ounce and test the previous all-time high of $1925 per ounce.