The Spanish Spring and the Gold Market Posted by James Randolph on April 30, 2012
Though there are always going to be tangles in a tangible market like the gold market, there are macroeconomic trends developing now that indicate gold is the best investment we have for the future. We’ve all read about the economic problems in Greece ad nauseam, and it seems they’ve done a bang-up job of strapping the country with enough debt to keep it out of the market until at least 2020. That might seem like an exaggeration at first, but Greece’s own government projects it will have a debt to GDP ration of only 126 percent by 2020. For now, Greece is tied up.
But while the news about Greece was going on, the problems in the several other European Monetary Union states were smoldering and catching. There are several nations that are currently part of what we call the European Union that have balance sheets comparable to Greece. Right now, one of the most important places being watched is Spain.
Unemployment in Spain is literally egregious and has been for the past six months to one year. The Bank of Spain is projecting a .4 percent decrease in growth for the first quarter of 2012. It is estimated that one in four Spaniards are without employment.
The reality of the fundamental soundness of the gold market becomes apparent when you consider this is actually an optimistic doctoring of the statistics. Consider that half, that’s fifty percent, of Spanish youth aged 18 to 24 are unemployed. This gave rise to riots in major Spanish cities earlier this year and as the bad economic data continues to spew fourth, there is certainly the major possibility of further civil disruption in the Spanish state.
No matter what short term hiccups occur in the gold market, we must face the debt situation in these majorly influential European nations. The debt problems of Europe brought down MF Global, a two hundred year old American bank headed by Jon Corzine, a former Governor of New Jersey and an official advisor to President Obama. You can’t get much more exposed than that, and we’re talking about a well-connected bank.
The world didn’t end, but the MF Global scenario did illustrate just how precarious our financial position is. The $1.2 billion of customer money that went missing is another story. The bottom line is that the economic situation in the world is not hunky-dory and we cannot afford to fool ourselves by believing it is.
We can, however, face fundamental facts and look squarely at what this will mean for the gold market. As the risk increases over the coming two years, gold will be much more highly valued that it has been in the relative relief of the past six to twelve months. The problems just beginning to surface in Spain this spring will certainly be found in other southern European countries.