Gold and Silver Likely to Go Parabolic Due to 'Global Shockwaves' if U.S. Defaults

Gold is some 0.5% lower against the U.S. dollar and most currencies today but higher in Australian dollars as the Aussie fell on Australian and global economic growth concerns. Asian equity indices were mixed as are European indices.

Cross Currency Table

Bond markets have seen subdued trading but Greek bonds are again under pressure and the Greek 10-year yield has risen to 17.37% in increasingly illiquid trade.

The dawning reality that the U.S. will be downgraded due to its appalling fiscal position led to new record nominal gold and silver prices yesterday.

Denial regarding the possibility of a U.S. default continues with some analysts denying that such an event is “possible”. Such an event is possible and it grows more likely by the day.

US Federal Reserve Chairman Ben Bernanke warned overnight that a default on America’s debt will spark a major crisis and send shockwaves through the global economy.

“The Treasury security is viewed as the safest and most liquid security in the world, and the notion it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system,” he told a congressional committee.

U.S. CDS – ZCTO CDS EUR SR 5Y Corp

US CDS has broken out to the upside and there is the potential for sharp moves up here as was seen in the aftermath of the Lehman and global financial crisis.

The fundamentals for gold and silver could not be better as the outlook for most paper currencies and government paper (sovereign debt) is not good. The precious metals are again being seen as safe haven assets to protect from government profligacy and currency debasement.

The risks of a “depression” and currency crises in Europe and the U.S. are rising and this is contributing to significant safe haven demand.

The fact that gold and silver have no counter party risk and cannot default and cannot be debased or printed into oblivion makes them crucial diversifications.

Gold, global equities and AAA rated, short dated bonds remain the best way for investors to protect themselves from today’s growing sovereign debt and monetary risk.

Gold, silver, good equities and good bonds will be better than depreciating cash or currencies in the coming years. Real diversification will help protect preserve and grow wealth.