What "Joke" Euro Countries Have to Do with Gold

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What "Joke" Euro Countries Have to Do with Gold

It's comedy hour again in Europe.This morning, we wake to news that, according to Eurostat, the European Community's statistics office, Greece's debt has been revised to 127% of GDP. Ireland is being pushed to accept a bailout from the European Economic Community. Some key government people in Italy quit this morning amid cries for Prime Minister Berlusconi to quit.Given what is happening in Europe, is it any wonder the greenback rallied two percent on Friday?No breaking news from Spain and Portugal today, but there is enough bad news coming out of Greece, Ireland and Italy to keep the euro under pressure. (As a side note: I would not be surprised to eventually see Germany leave the euro and head back to its own currency.)Looking at the securities issued by the governments of the troubled European countries, their bonds yield between 7.0% and 8.5%. In the U.S., a country that I believe in the long term is headed down the same path as some of the debt-ridden European countries, investors are buying U.S. government five-year bonds for a yield of only 1.46%.In the same way I couldn't understand why investors were jumping into NASDAQ stocks in late 1999, I can't understand why people are willing to buy U.S. Treasuries today at such paltry returns, given the financial condition of the issuer. (We all know what happened to the NASDAQ 100. The index is still down 50% 10 years later.)But cracks are starting to show in the lining of U.S. bonds. The yields on five-year U.S. Treasuries have been rising for two weeks straight now.Going back the "joke" Euro countries...How the wheel is working could not be clearer. The euro falls in value on poor economic news coming out of Europe, the U.S. dollar rallies, and gold goes down in price. This is what the "joke" European countries have to do with gold. And this exactly what happened on Friday. The euro got whacked, the U.S. dollar rallied two percent and gold bullion fell two percent in price.At some point, it will not matter what the news is in Europe. The U.S. will have its own comedy running and its currency will weaken on its own without help from Europe. An ever-increasing money supply and no real effort to put the brakes on government spending can only lead to higher U.S. domestic interest rates and a weaker greenback.As has been the case for the past 10 years, I see any weakness in the price of gold bullion as an opportunity to further accumulate the metal.

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