Gold jumps again, could it lead to a unified European bond or a BRICS takeover?

Madison Ruppert, Contributing Writer
Activist Post

The climb in gold prices doesn’t seem to be letting up any time soon. For the second day straight the price of gold has risen after a brief two day drop as the Eurozone crisis has no end in sight.

Gold for immediate delivery rose 0.6% to $1,844.98 per ounce while December delivery gained up to 1% to leave prices at $1,848.20 an ounce.[1]

The rise doesn’t seem to be reaching a ceiling any time soon, either.

The global head of currency strategies at RBS Securities Incorporated, Robert Sinche, told Bloomberg that since, “liquidity [is still] abundant in the global environment we do think gold probably still has some good risk-reward characteristics even at these levels.”

Governments from around the world seem to be reinforcing Sinche’s assessment, with some leaders like Chavez of Venezuela demanding physical delivery of a large portion of their foreign gold holdings.[2]

With Moody’s recent downgrade of the credit ratings of French Credit Agricole SA and Societe Generale, and BNP Paribas currently on review for a downgrade as well, the Eurozone sovereign debt crisis seems to be heading into even more dangerous territory.

It has now become so potentially dangerous that the Chinese Premier Wen Jiabao and American President Barack Obama have both come out and voiced concern.

Obama said that “more effective coordinated fiscal policy” was required by European nations. What exactly this was, of course, he wouldn’t say.

I seriously doubt that any of the flawed economic solutions promoted in the past, such as the Keynesian stimulus so loved by Obama, would help this dire situation.

Wen said that China is “willing to help its biggest training partner,” while still emphasizing that the European countries “must stop the crisis from growing.”[3]

According to Reuters, credit markets are now estimating that there is a 90% chance of Greece defaulting on their debt. We’ve seen the chaos in the streets in the wake of Greek governmental attempts to stave off default through austerity so this seemingly high figure might be quite accurate.[4]

To make matters worse for the highly unstable Eurozone, Italy’s debt crisis is likely going to be too significant for any outside rescue packages to save them from default seeing as their public debt is a whopping $1.9 trillion Euros and the public debt burden is roughly 120% of Italy’s GDP.

However, Reuters has reported that a source in the Italian ministry told them that Italy has been in talks discussing possible Chinese investments in the Italian industrial sector, but not their bonds.

This might be because credit markets are reportedly now demanding the highest risk premium since 1999 on five year Italian bonds.

Much pressure is now being put on Italy, as if they are the fulcrum in the Eurozone that could cause the total free-fall collapse of the European economy.

In response, the Italian government is pushing highly unpopular austerity measures, including a package that could cut up to $73 billion in deficits.

The Italian public is not having any of it as they quickly realized that the austerity plan, which was foisted on the nation by the European Central Bank, involved massive cuts to local government and other important sectors.[5]

It appears that China and other BRICS nations very well might be using this sovereign debt crisis to seize control of Eurozone debts.

In a speech at a Chinese meeting of the World Economic Forum, Wen said, “We’ve said countless times that China is willing to give a helping hand and we’ll continue to invest there.”

Wen would not provide any specifics on their plans.

Even Timothy Geithner, the Secretary of the Treasury, has tacitly showed his alarm over the Eurozone debt crisis by planning to attend a European Union finance minister meeting this Friday in Poland.

However, another possible solution aside from austerity measures and foreign involvement seems to be on the table as well.

Just minutes ago, European shares moved from their recent continual negative fall, to positive upon news that the Jose Manuel Barroso, President of the European Commission (the non-democratic body that dominates the EU), would be presenting options for a common European bond.[6]

If this plan works, it could provide a significant talking point to those seeking to create a unified world currency to supposedly avoid further debt crises.

Notes:

[6] http://www.reuters.com/article/2011/09/14/us-markets-europe-stocks-idUSTRE78B12U20110914