2011-11-15

Gold Price Hovers Under $1,800

The gold price dipped Monday, trading lower by $7.00 at $1,781.50 per ounce. Gold price have been relatively stable amid regime changes in both Greece and Italy. The resignation of Silvio Berlusconi from the post of Prime Minister initially led to lower bond yields in the fiscally-strapped nation, but sellers came in and sent yields higher. Italian 10-year bond yields traded at 6.61% heading into the opening bell on Wall Street.

The center of sovereign debt concerns shifted last week from Greece to Italy, as surging Italian bond yields added further uncertainty to an already dire situation. Speculation has risen that Italy will be the next member of the PIIGS to need financial assistance from some combination of the European Financial Stability Facility (EFSF), the International Monetary Fund (IMF), and/or the European Central Bank (ECB). While the EFSF would likely be the initial source of aid, its current size is unlikely to be sufficient to stem the tide of the Italian crisis.

With the situation in Italy escalating, several economists and policymakers have called for the ECB to step up to the plate with a robust set of money printing measures to help combat the crisis. One notable individual in this camp is Portuguese President Anibal Cavaco Silva, who stated in a Bloomberg interview last week that the ECB “has to go beyond a narrow interpretation of its mission and should be prepared for foreseeable intervention in the secondary market, not as the central bank has done up to now…It has to be able to be a lender of last resort.”

Notwithstanding the fact that explicit money printing is in violation of the Maastricht Treaty – which led to the creation of the euro currency, and over whose signing Silva presided – support for the ECB to ignite the printing presses has risen substantially as the economic environment in Italy has deteriorated. The gold price stands to be a prime beneficiary of further currency debasement.

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