As pressure mounts once again on the architects of the Eurozone to take decisive action to resolve their debt crisis, it now seems inevitable that we will see one of two outcomes.
- The ECB will backstop Europe’s sovereign debt holding the currency block together.
- The number of nations sharing the single currency shrinks from 17 to around 10 leaving a stronger eurozone containing Germany, the Nordic countries and possibly France.
Even if Eurozone leaders fail to act, outcome number two will likely be enforced by the financial markets through higher bond yields and eventually default.
Higher gold prices
Both outcomes are good for gold since the first will inevitably lead to further currency debasement, and the second will lead to increased fear and serious repercussions for banks and other financial institutions.
Short-term euro weakness but long-term strength
In the short-term even an orderly breakup of the eurozone would be negative for the single currency, however having shed the weaker nations the new currency block would be much stronger and should trade at a premium.