Spanish unemployment rate: bad to worse

2012-APR-27

European governments are collapsing left right and centre, Standard & Poor’s have just downgraded Spain’s credit rating by two notches, and new data out this morning shows that close to 1 in 4 Spaniards are unemployed. Yields on Spanish 10-year bonds are up 18 basis points to 5.989%.

Another day, another round of depressing news from Europe. And with Angela Merkel’s “austerity block” at risk of total collapse, “with the hard-Left and hard-Right on the rampage across Euroland”, politics on the continent could be about to get a lot more dramatic.

Amid all this, one may ask, why is gold not shooting to the moon – and why is silver still stuck in the low $30s per ounce? Shouldn’t these metals be acting as “safe havens” from all these problems?

The relative firmness in the US dollar since the start of the year has helped contain metal prices. Gold and silver tend to do best when the Dollar Index (USDX) is falling. In addition, many still fear deflation – despite all the signs that central banks stand ready to do whatever it takes to avoid it – which has led some to conclude that cash and bonds are good investment choices. The panic of 2008 – when gold and silver got crushed along with “risk” assets such as equities and general commodities – still weighs on many investors’ minds.

The longer-term outlook remains unchanged. Gold will win the money war.