Contagion – frightening but good for gold

Contagion

Growing contagion

Finance ministers are insisting on a £1.5bn firewall around Greece in order to prevent widespread contagion. These austerity measures have been deemed essential for fear that nonconformity will influence the amount of financial support from other EU states. Avoiding the need to speculate, it will be interesting if the same measures and demands are placed on Spain, Italy, Portugal, and Ireland to name a few.

Contagion for the most part is a dreadful prospect and would transmit negativity rippling PHYS01_Animated_Gif_1_MPUthrough the financial markets. In terms of being able to measure the force of contagion, one would look at depreciating equity indices, the falling value of the Euro and unemployment.  Confidence is a major factor that underpins the stability of the market but this can also be measured in the rising price of gold. Since April 2010 gold has risen by almost 62%. Weakened confidence within financial markets and contagion thereof are the single largest contributor to rising gold demand. The fundamentals that support a rising trend for gold are often misconstrued. It’s not that Gold has become more expensive; more accurately – it takes more (depreciating) currency to buy the same amount of gold. Over the next few weeks, I will be looking at the following issues and how they affect the price of physical gold:

  • Inflation
  • Unemployment
  • Devalued Currency
  • Terrorism
  • Interest rates
Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

Leave a Reply

Your email address will not be published. Required fields are marked *