First, it was the Greek debt crisis that dominated headlines for weeks and served as an excuse for gold to rise at a faster pace than the one to which we had grown accustomed. During the ordeal, hints of other lurking debt crises lingered. I don't recall Ireland being so much the topic of rumor as I do Spain, Portugal and perhaps even Great Britain. Nonetheless, there were others.
Then POOF! The issue seemed to vanish from the radar and reports were simply that a solution had been negotiated. One minute the Greeks were rioting and buying gold for as much as $1700 per ounce, and the next - Crisis Averted! Gold, however, didn't pay much attention to the crisis averted part of the story as the gold price continued its steady rise.
Then comes Ireland and another bailout to the tune of an estimated $130 billion. The markets used it as an excuse to soften, however, some believe the markets were overbought to begin with. The Gold price seemed to ignore the news as the temptation to take some profit off the table, before year-end, proved tough to resist.
Now, hints of similar woes in Spain and Portugal are once again surfacing. More and more it appears, the world debt crises are not about to dwindle. As we are reminded by Dave Rosenberg, Chief Economist and Strategist for Gluskin Sheff, European debt concerns will not be fully alleviated just because a rescue plan has been cobbled together for Ireland as it deals with its banking crisis. The focus will now likely shift to other basket cases such as Portugal and Spain. Greece has a two-year lifeline before it defaults. This saga is going to continue for some time yet. full article
At home here in the U.S., our own debt crisis lingers as numerous state and local governments verge on bankruptcy. Again, according to Rosenberg, State and local government cutbacks are a higher prospect than haircuts for bondholders and as such those companies that have a relatively high concentration of sales geared towards the lower levels of government may well be nice shorting candidates.
My question is this. If state and local governments are facing cutbacks, does that not pose a countering effect to Federal Stimulus? I think so! Which means, as we continue our journey down the yellow brick road to the land of OZ, [Did you know the Wizard of Oz was about Gold and a fight to reinstate silver as money? Oz representing ounce? interesting link] we may be confronted by failed efforts of the latest round of QE to have an uplifting effect on the economy.
This makes me believe that we are definitely headed for either default or much higher inflation as it becomes increasingly more difficult to imagine that just one more round of QE can provide the eternal fix.
Right now the Irish got lucky and so will Spain and Portugal when their turn comes. But someday, all debts come due. It's like rowing a boat with one oar. It looks like you are making progress, but, eventually you just end up right back where you started from.
Expect gold demand to continue rising as savvy investors around the globe see the future.