Gold and Sovereign Debt
A warning from Moody's today on the sovereign debt risk rating to four major economies, which include the U.S., Britain, Germany and France, caused gold prices to rise as safety was on the minds of investors today.
But before investors leave the gold sector, they need to look closely at the potential consequences of the risk associated with losing their AAA-rating status and why it's a reality.
Look at the plunge in value of the euro in relationship to little Greece to see what could happen if any of these nations were in the same position, which in reality they aren't that far off.
Moody's also said Spain is probably the closest among countries at this time to be at risk of losing their status, and some observers have said if Spain fell the European Union couldn't support them, and the euro experiment, and the Union itself could be over.
As far as the performance of gold prices, this is why even though the U.S. dollar had some strength today gold prices went up with it, as the usual parameters and moving in opposite directions doesn't apply when you start getting into sovereign debt issues.
This is why the idea we're in a gold bubble is ludicrous. The underlying fundamentals for gold, which are as an inflation protection and safety hedge are strong in force, and they are not going to go away any time soon. Consequently, gold prices will continue to rise.
Gold and Sovereign Debt
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