Gold Robust Over $1,500 As Stagflation Deepens And Greek Default Risks Eurozone Break Up And Financial Contagion

Tyler Durden's picture

From Gold Core

Gold Robust Over $1,500 As Stagflation Deepens And Greek Default Risks Eurozone Break Up And Financial Contagion

Gold is trading at $1,517.80/oz, €1,051.33/oz and £925.09/oz. 

Gold is tentatively higher this morning with the British pound, yen,
Swiss franc and dollar showing weakness. Greek German 10 year bond
yields have surged to euro era record highs and the Greek 10 year bond
has surged to a new record high of 17.146%.

The euro has remained remarkably stable, so far, but euro gold at €1,052/oz remains near (3.4%) record highs of €1,088/oz.

Bloomberg European Crisis Monitor

Gold is consolidating above $1,500/oz after rising from just over
$1,400/oz at the start of the year to a record nominal high of
$1,567/oz. The real risk of a Eurozone break up and the likely financial
contagion that would result is supporting gold prices and is one
fundamental factor likely to lead to further safe haven demand for gold
in the Eurozone and internationally.  

Credit Suisse has said that gold may rise above $1,550/oz in the next
few days and a close above that level “would be important”.

Cross Currency Rates

Stagflation Threatens Major Global Economies - Inflation in China at 5.5% and UK at 4.5%

Another fundamental factor supporting gold prices and likely to lead
to further gains are the increasing signs of stagflation in major global
economies. UK inflation data released this morning shows that inflation
remains high at 4.5%. 

The Bank of England expects inflation to reach 5% later this year
prior to falling but the Bank’s credibility is increasingly strained as
inflation has now exceeded the BoE’s target of 2% for 34 of the last 40
months. 

British savers and pensioners are suffering from negative real
interest rates and this continues to make gold an attractive
diversification from a devaluing pound.

Gold in British Pounds – 180 Days - (Daily)

Meanwhile in China, inflation has risen to 34 month highs at 5.5% as
food price and energy inflation deepens. Lending has fallen and China’s
money growth has fallen to a 30 month low. Overnight, China upped its
bank reserves to try and contain inflation.

 

Gold in Yuan/ Renminbi – 1 Year (Daily)

The Chinese have experience of currency devaluation and even
hyperinflation and are aware of how paper currencies can be debased and
lose purchasing power. Serious inflation in the past has sparked rioting
and social unrest and is doing so again today as seen in many riots
throughout China (particularly in the South) in recent days. 

There appears to be a gathering “perfect storm” of deepening
inflation, slowing economic growth and double dip recessions,
stagflation, sovereign debt crisis in many major western economies and
the risk of sovereign and banking contagion.

This will see gold supported in the coming months and the inflation
adjusted high of $2,400/oz remains a viable long term target given these
fundamental risks.

SILVER
Silver is trading at $34.74/oz,€24.07/oz and £21.17/oz.

PLATINUM GROUP METALS
Platinum is trading at $1,791.70/oz, palladium at $796/oz and rhodium at $1,925/oz

NEWS

(CNBC) 
US Is in Even Worse Shape Financially Than Greece: Gross

(Reuters) 
PRECIOUS-Gold bounces after 1 pct fall; jewellers buy

(Bloomberg) 
Gold Snaps Two-Day Drop on Inflation Concern, Greek Sovereign-Debt Crisis

(MarketWatch) 
Gold, silver advance in electronic trading

(Wall Street Journal) 
Impasse Leaves Belgium Without Government One Year After Elections

COMMENTARY

(Financial Times) 
The eurozone heads for break up

(The Telegraph) 
Opec's Vienna summit meant nothing for long-term oil price trends

(Mineweb)
Silver in China could turn out to be the new gold

(ZeroHedge) 
Exclusive: In Q1 Bernanke Spurred Inflation By Successfully Offsetting The Ongoing Collapse Of The Shadow Banking System

(The Christian Science Monitor) 
Is the Fed manipulating the stock market?