Gold and the first chinks in the armor of the European Monetary Union
Fitch downgraded the public debt of Greece, a member of the Euro to BBB+
Moody’s and S&P both have a negative outlook for this country.
If the numbers are correct (and this is not always certain in Greece) the public deficit ballooned to 12%, far above the 3% threshold the Maastricht treaty normally allows. Public debt reaches 120% of GDP.
Yesterday Moody’s lowered its outlook for Spain’s national debt. If informations are correct Portugal is not in a much better situation.
These countries face a serious problem: They cannot devaluate their currency in order to help their economy because they are members of the Euro. This could mean sluggish economy with rising public interest payments as creditors are willing to lend only with higher risk premiums.
For the first time a sovereign debt crisis within the monetary union could be on the horizon.
So far my fears expressed in my previous post begin to become reality!
The Euro weakened against the dollar for the first time after weeks.
Gold currently passes a correction after the huge runup this year but it will be interesting to watch where it will be heading in 2010:
Once again: Will gold rise only when the dollar is weakening or will it rise also when the dollar remains relatively strong?
If the second alternative prevails this could very well be a strong indicator of the beginning distrust in paper currencies Alan Greenspan mentioned earlier this year …. a distrust in all paper currencies, not only the dollar!
We would then be only at the beginning of a multiyear gold bull market!