Perfect Storm: Banking / Sovereign Debt = Global Currency Cr

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‘Perfect Storm’ Of Global Banking and Sovereign Debt Crisis To Lead to Global Currency Crisis

Submitted by Tyler Durden on 09/14/2011 07:38 -0400
Comments: 18 / Reads: 5,482
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Submitted by GoldCore

‘Perfect Storm’ of Global Banking and Sovereign Debt Crisis to Lead to Global Currency Crisis

Gold is marginally lower in U.S. dollars and is trading at USD 1,831.60, EUR 1,337.90 , GBP 1,160.50, JPY 140,722, AUD 1,792.60 and CHF 1,610.10 per ounce. Gold’s London AM fix this morning was USD 1,829.00, EUR 1,339.33, and GBP 1,160.46 per ounce. Yesterday’s AM fix was USD 1,806.00, EUR 1,326.38, and GBP 1,143.33 per ounce.


Cross Currency Table

Gold remains well bid above the $1,800/oz level as value buyers continue to diversify into safe haven bullion due to the real risk of contagion in Europe and globally.

Normally gold’s sell offs are swift and sharp with a series of consecutive daily down days seen. This is not happening and yesterday’s rise suggests that gold may be bottoming after a brief correction.

Technically, gold would need to close the week higher before the somewhat negative short term technical picture was negated.


Gold Spot Dollar/oz (G14 30 Days - Bloomberg)

Volatility and wild gyrations in all financial markets continues due to a confluence of negative data, news and fundamentals.

French banks have been downgraded and Chinese Premier Wen’s call that Europe get its own house in order quashed the unsubstantiated and unsourced rumors regarding massive Chinese intervention to solve the Eurozone debt crisis.

European banks are hemorrhaging deposits as savers and money funds pile into other perceived havens such sterling, dollar and Swiss franc deposit accounts. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months.

A tiny fraction of these European deposits has gone into gold with the majority going into other fiat currency deposits. It is not just the saver of periphery nations who are opening non euro deposit accounts - many German savers are opening up deposit accounts in Switzerland.

Greece’s inevitable default is being prepared for despite the usual denials. A conference call among Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel is set for 16:00 GMT.

More obfuscation and delusion is likely unfortunately but it may lead to another misguided bout of irrational exuberance and excessive risk appetite.

The reality is that a default by Greece is inevitable and indeed a breakup of the European monetary system and reversion by some countries to national currencies seems increasingly inevitable.


XAU-GBP Exchange Rate (G14 30 Days - Bloomberg)

A Jefferies report suggesting that Europe is about to experience a Lehman Brothers collapse and splintering of the Eurozone continues to be digested and reverberate around global markets.

The report echoes and confirms what more astute observers, including GoldCore, have been warning of for some time.

The author is David Zervos, Managing Director and the Head of Global Fixed Income Strategy at Jefferies and a former Federal Reserve official (Visiting Advisor in the Division of Monetary Affairs in the Federal Reserve Board in Washington DC).

The Jefferies report first covered on Zero Hedge warns of “a move towards financial market nationalization that will make the U.S. experience look like a walk in the park.â€

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China's largest export customer is the European Union.

If they go belly up, so does China. That's when things start to get really, really tricky ..