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Gold, Dollar or Euro Collapse?

Which of these 3 forms of money faces a collapse in 2011...?

RIGHT NOW, the markets have pulled gold back in the face of what seemed to be an upward turn in the US economy, says Julian Phillips at

Many may feel this is the time to sell, not Buy Gold. Yet the growing Eurozone debt crises could spell the end of the Euro as we know it. The debt problems of the US are worse than Europe so it is a time to ask, "Which of these three forms of money might collapse?"

Over the last few years we have seen a great deal of well-qualified speculation that the US Dollar should collapse. The world's largest economy is seriously over-borrowed and still increasing the amount it needs to borrow. By March 31st, the divided House must increase its legal borrowing limits or face short-term default.

The US has run an unacceptably high trade deficit for decades and is completely unconcerned that this continues without any intention of rectifying matters. The twin deficits cannot be resolved by cutting back less than $100 billion in defense spending. We are now told that US House Republicans have proposed policies in their first week that would make the shortfall worse.

Were it any nation other than the US in such a situation, the Dollar would have an exchange rate to the Euro of $1.70 or worse, and be seeing distress levels on its Treasury yields. Yes, it would be at least on the brink of collapse or in the process of doing so.

However, Eurozone debt problems are not being resolved, either. Each day we are hearing more bad news...

  • Greece will want to extend its repayment period on its 'rescue package;
  • Ireland could well default under a new government unwilling to accept the interest rate levels it has to pay on its 'rescue package';
  • Belgium remains government-less and headed quickly into the same hole as Greece and Ireland;
  • The Latin countries of Portugal, Spain and Italy are following the same road as these others.

If the EU has to bail out all of these countries then it will be over extended and will send the Euro tumbling like a stone (eventually at $1.00 or lower – sorry, the US Dollar is racing down too). The prospect of the debt-stretched nations being ejected from the EU is not off the table, nor is Germany's exit from the EU

The prospects for a Gold Price collapse, meantime, stem from so many analysts hoping for and expecting a economic recovery to turn up in the developed world, on a broad front. Indeed, some gold investors are taking the present drop in the Gold Price as an exit point ahead of returning confidence in the currencies of the developed world. They may also feel that we are seeing the end of the gold 'bull' market.

But despite all these fears we see no sign of a collapse of any of these three items. A look at the world's two main currencies in the hands of the Chinese gives us some insight into why this has not happened yet.

"The Euro and the European financial markets are an important part of the global financial system and were, are and will be one of the most important investment areas for China's foreign-exchange reserves," said Deputy Governor Yi Gang of the People's Bank of China.

The same applies to their $3 trillion investment in the US Dollar. The same goes for every other country on this earth. It is in nobody's interest that either the Dollar or the Euro collapse. After all, currencies serve primarily as a means of exchange. Without them, barter would be back and that is not going to happen.

So long as there is no complete disaster facing these currencies, they will continue to serve their role in the international and national monetary system as the means of exchange. Take a look at countries that suffered hyperinflation. They continued to use their collapsing currencies right to the end, when they had to turn to the US Dollar as their means of exchange.

The secondary role of providing a measure of value is one that investors focus on and would were it the only function of currencies, have caused a collapse of both currencies by now.

This leaves mere mortals the option of moving away to instruments that will retain their value when currencies don't. Governments and businesses don't have that option when they conduct international business. That's why China wants the Dollar and the Euro to hold up. The benefit of doing this to China is twofold. First, China continues to sell its goods to those nations and secondly, they increase their power over the two currencies and their fixed interest (particularly government) markets.

The only time they would have an alternative to this would be if there were another global currency of similar liquidity through which it can trade. At the moment, there isn't any...but not for too much longer we think.

This makes the exchange rate moves of the two leading world currencies all-important to world trade profitability. Your wealth is measured in your home country currency, so you should always be in touch with the success or failure of your currency to measure value. As for Gold Price collapse likelihood, we have to look at its exceptional ability to measure value and ignore any means of exchange role. With the head of the World Bank suggesting that the Gold Price be used as a reference point on which to measure a currency's value, we see again why the head of Germany's Bundesbank called gold a "useful counter to the swings of the Dollar."

Using basic logic then we can only see a collapse in the Gold Price if the inherent value of both the Euro and the Dollar soar to unseen heights against the broad spectrum of assets, including gold. Is this happening? Is it likely to happen? Would you place your trust in the Euro or the Dollar as an investment likely to take your wealth to new heights? More to the point, could we expect the Indian, Asian and Chinese investors to place their faith in these two currencies and away from gold?

Therein lies the answer to whether there will be a Gold Price collapse!

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JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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