Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Cara Therapeutics - CARA - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 28th Sep 21
US Antitrust Against the Big Tech - 28th Sep 21
Gold Medium-Term Downtrend: Gold Miners in the Lead - 28th Sep 21
Reflation vs. Economic Stagflation - 28th Sep 21
Corsair iCue H150i RGB Pro XT FULL Review! Software, Failed Firmware Update Unbricking Fix! - 28th Sep 21
Blueprint Medicines - BPMC - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 27th Sep 21
China, India: Richer or Poorer? The Asian Pacific Financial Markets Forecast - 27th Sep 21
Stock Market Bubble Valuations Dot Com 2000 vs 2021 - 27th Sep 21
Gold When the Tight Economic Rope Slackens - 27th Sep 21
The U.S. Government Plans to Default on Debt the Dishonest Way - 27th Sep 21
Stock Market Retest of the High? - 27th Sep 21
Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
Will Biden’s Neo-Populist Economic Doctrine Support Gold? - 25th Sep 21
Markets Deflationary Winds Howling - 25th Sep 21
Crude Oil Price Piercing the Sky: Where Will We See the Black Gold by Xmas? - 25th Sep 21
Cryptocurrency policy choices and consequences - 25th Sep 21
The Next Emma Raducanu UK Tennis Star Pleasing the Crowds at Millhouses Park Sheffield - 25th Sep 21
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Euro Breakdown Bodes Well for Commodities

Commodities / Commodities Trading May 11, 2011 - 05:21 AM GMT

By: Dr_Jeff_Lewis

Commodities

The world is entering another financial crisis spurred first by debt and secondly by weak currencies.  Recently, Greece has reached tipping point in its austerity measures, hoping that the European Union led by German policy makers will send bail out dollars their way.


The failure of the Euro is well documented.  While the United States has problems in culling back its massive deficits, at least it can fool the markets temporarily with its access to the printing press.  In Europe, there is only one central bank for many national governments, and most aren’t too keen on using the presses for Greece’s benefit.

ECB Restless

The European Central Bank is growing restless.   Some members feel as though a bailout may be necessary to save the Euro.  Some members, such as Jean-Claude Trichet, the ECB chief policymaker, have said the opposite—the central bank must tighten in order to create recovery.

The ECB has forecast future rate hikes to reduce total inflation.  In April, rates were raised by 25 basis points to 1.25 percent.  That amount, however, is still well under the necessary rate of interest.  Inflation in Europe is officially measured at 2.8 percent per year, meaning it is still possible for bankers to borrow at less than half the rate of inflation.  Don’t you wish that you could borrow money (or anything, really) for less than the cost of depreciation? 

Future rate hikes are uncertain and perhaps impossible.  Greece recently awoke to a cut in its credit rating to BB-, making it one of the few “brand-name” countries to sell debt at junk bond status.  The cost of debt service is exponentially higher than three years ago, and the market for credit default swaps—insurance against default—rose to 1375 basis points, or 13.75% per year.  If Greece wants to borrow money, they’ll have to pay at least 13.75% per year just to provide adequate risk-coverage.  Even quality European bonds are paying for the crisis, with their CDS coverage now costing just under 1% per year.

Silver’s Success

In recent days, the Euro has been getting slammed against all currencies, but most importantly the dollar, after Greece’s budget troubles resurfaced.  Generally, the Dollar and the Euro are considered safe haven currencies, and they are popular reserve currencies around the world.  To see the Euro weaken against the dollar, especially considering the carry trade implications, tells us one thing: the Euro is on the brink.

Investors holding Euro-denominated assets have done well in recent years against the dollar, but to what end? 

Eventually, the realization for institutional investors, those who are most active in the currency markets, is that it will be only the monetary metals that can save their holdings.  The European Union is strained, yields are lower than inflation, and most global currencies face the same fate.

The commodities markets are one of the few areas where investors can safely store their money, either in gold, silver, oil, or a myriad of other products which, unlike world currencies, have appreciated at rates greater than inflation.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Finn Puklowski
11 May 11, 15:12
Im sorry

I'm sorry, but is this not just the movement of capital in the face of the end of QE2 back to the U.S dollar?

Speculators have been bending this market back and forward pricing in these huge trends.

Now we know Europe is on the chopping block, but really. Resurfacing the death to the Euro argument right when it starts to turn back down (and the us up).

Watch precious metals for your indicator. If they and commodities drop off, the US dollar increases and the Euro decreases. This is not an all time trend just recent.'

Regards. Finn


Post Comment

Only logged in users are allowed to post comments. Register/ Log in