While the European sovereign debt situation remains prominent in the business news, the euro has depreciated significantly is anticipation of events that could lead to the dissolution of the European union, and that will spend the end of the euro as we know it. This growing idea has lit a fire under gold, the shiny metal which investors flee to when trouble looms over the horizon, and these days with the European Sovereign debt crisis on the front page of every newspaper in the world, gold investors have a lot to smile about.
While it is the trendy thing to do to hate the euro lately, people need to understand that crowd psychology is the main underlying factor that determines currency valuation as in stocks. At the present time fear is driving the “euro to zero” story, but be advised, High doses of fear no matter how terrifying will sooner or later wear off. That is the nature of human behavior and cannot be avoided. Right now, the sell the euro, buy gold trade is driven by pure fear and emotion.
For debt-ridden U.S. and Europe, the best option is goldMore than 3 years after the global financial panic, the global economy still expands at a frightfully slow rate as
the U.S. and the European Union both face the dilemma of high public debt and flagging economic growth. All of this makes us think that it is a good time to be a developing country rather than a major super power. Debt conditions are much more favorable in the main emerging market countries than they are in the west, while in the largest G-20 developed economies the sovereign debt crisis places a burden on their economies that average more than 100% of their Gross Domestic Product. This is in contrast to the 20 most significant emerging countries where their debt takes up only about 40% of their GDP.
A manageable debt load helps emerging markets in a lot of ways, foremost in how the risk of defaults are calculated and managed. Credit ratings for the largest emerging markets are at this time improving, while the credit ratings of the largest developed nations are slipping. At present, the developed markets do bear higher ratings but the trend if it persists will eventually have the lines crossing. The upshot of all this is inflation and gold will become items that financial journalists will be writing a lot about. If the major economies of the world continue to suffer credit downgrades, then gold will just keep going up higher. As these nations look to print money to help themselves deal with their own domestic Sovereign Debt Crisis then inflation too can only go up.
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