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The Coin Analyst: The Euro Crisis, Currency Wars, and the Outlook for Precious Metals

by Louis Golino for CoinWeek

Many analysts regularly predict the break-up of the euro zone and even of the European Union, but in reality neither development is likely, especially in the near future.

While it is true that the prospects for a Greek exit from the euro look increasingly likely in the aftermath of the recent Greek elections, it is a mistake to lump together all European Union countries having economic and financial problems.

Greece is clearly broke, and its politics are becoming increasingly polarized, as seen for example in the votes garnered by the Greek neo-Nazi party last Sunday. At this point it is likely that either the coalition government that emerges will voluntarily choose to leave the euro, or it will be forced to do so because the EU will refuse to keep bailing out Greece since is not expected to continue the austerity policies and economic reforms of the previous Greek government.

A Greek exit from the euro will certainly increase global economic uncertainty, rattle financial markets, and may worsen Greece’s economy, but at this point, it is getting close to inevitable. It is hard to imagine how Greece would fare outside the euro zone given how weak its new currency will be in relation to other currencies, but it is even harder to imagine how it will remain inside.

Besides, once the world comes to term with Greece’s euro exit, we are likely to see an improvement in the outlook for Europe and the global economy, which may well drive the value of the euro higher, at least for a while, which is also a plus for U.S. exports. And while the world can deal with Greece leaving the EU, a break-up of the entire euro zone would have much more serious implications.

France, which elected a Socialist president for the first time since 1981 last Sunday, is a much different story. Its new president, Francois Hollande, is a former protégé of the previous Socialist president, Francois Mitterrand, who was a staunch ally of the U.S. and who helped engineer German unification. Moreover, the euro currency was largely his idea.

Hollande is likely to take many steps designed to reassure financial markets that his country will remain within the mainstream of the EU. He will try reach some kind of compromise with German leader, Angela Merkel, about the right balance between growth and austerity. The sticking point with Germany will be convincing it to pursue a more expansionary economic policy by raising wages and agreeing to do more at the EU level to provide liquidity in the form of euro bonds.

The area where France under Hollande is likely to be a significant concern is the structural economic front. He has called for undoing many of the reforms of his conservative predecessor Sarkozy, such as raising the retirement age, but over time I think he will abandon many of his electoral promises in this regard. If not, financial markets will punish France by raising the cost of financing its debt.

The bottom line as far as the euro crisis is concerned is that a way will likely be found to keep the currency and the union intact, but both will remain under great pressure for many years, and the possibility of a break-up of the euro zone will continue to loom in the background.

James Rickards, who is the author of the best-selling book, Currency Wars, and a prominent analyst on global financial issues, predicts that the euro will emerge as the ultimate victor of the global currency wars. He also explains that both the U.S. and China will work to prevent a collapse of the euro because both countries do so much trade with Europe and in order to avoid the economic chaos that would follow a break-up of the euro zone.

In addition, while the U.S. remains mired with a dysfunctional political system that seems incapable of coming to terms with its long-term debt and deficit problems, the euro crisis is forcing EU countries to take big steps towards addressing their own problems. The alternative to reform in Europe is bankruptcy, economic collapse, and a further rise in political extremism.

Some analysts, especially in the U.S., question the idea that Europe is doing more than the U.S. to address its problems by pointing to continuing high levels of debt to GDP ratios in many EU countries. While that is true in some cases, most glaringly of course in Greece, it ignores the fact that many EU countries, including some of those most at risk in the current crisis, have not been profligate spenders and are not heavily indebted, relatively speaking. The main examples of the latter are Italy and Spain, whose main problems are driven by rising interest rates demanded by bond buyers.

So how does all this relate to the outlook for precious metals?

The starting point is to understand that the ongoing global economic crisis has resulted in a situation in which the outlook for metals and other asset classes is driven less by economic fundamentals and more by monetary conditions and currency wars.

In other words, over time issues like supply and demand, central bank purchases of gold, and so forth will shape the outlook for metals, but in the short to medium term, they are more likely to be driven by competitive devaluation of the U.S. and Chinese currencies and the ongoing crisis in Europe. In the coming weeks and months, the euro crisis will keep downward pressure on the euro, and that will drive the dollar up and gold and other metals down.

But in all likelihood both Europe and the U.S. will before long be forced to do more quantitative easing to try to stimulate their economies, as will the Bank of England and Bank of Japan. That is because economic growth will remain sluggish, and they are largely out of options. Those actions will of course be bullish for gold and other precious metals.

In addition, if the U.S. continues on its current path, it will face the mother of all financial crises if the dollar were to lose its status as the world’s reserve currency. The dollar is the main reason the U.S. is currently able to continue financing its rising debts.

As far as metals are concerned, it is true that there are many bullish developments. But it is also important to note that retail demand for metals globally is under pressure at the moment. China and central banks may be buying gold, but mints all over the world are seeing the demand for bullion gold and silver coins decline sharply compared to last year. Many bullion coin buyers are clearly worried about declining prices over the past year.

This is indeed a good buying opportunity for those looking to add to their bullion positions, but be prepared for continuing pressure on metal prices from developments in Europe and around the world. So far, even sharply lower prices have not resulted in a surge of coin buying. If global economic uncertainty increases as the euro crisis festers, there may be even bigger bargains down the road.

But once the focus shifts to the U.S. election and our economic problems later this year, I would not be surprised if the dollar reaches new lows and metals see new highs. Remember that last year’s congressional showdown over the debt limit coincided with the period when gold prices peaked.

Louis Golino - WriterLouis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

Louis Golino
Louis Golino
Louis Golino is an award-winning numismatic journalist and writer specializing on modern U.S. and world coins. He has been writing a weekly column for CoinWeek since May 2011 called “The Coin Analyst,” which focuses primarily on modern numismatic issues and developments at major world mints. In August 2015 he received the Numismatic Literary Guild’s (NLG) award for Best Website Column for “The Coin Analyst.” He is also a contributor to Coin World, where he wrote a bimonthly feature and weekly blog, and The Numismatist, the American Numismatic Association’s (ANA) monthly publication, where he writes a monthly column on modern world coins. He is also a founding member of the Modern Coin Forum sponsored by Modern Coin Mart. He previously served as a congressional relations specialist and policy analyst at the Congressional Research Service of the Library of Congress and as a syndicated columnist and news analyst on international politics and national security for a wide variety of publications. He has been writing professionally since the early 1980s when he began writing op-ed articles and news analyses.

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  1. Another good article, Louis, and I especially enjoyed your commentary in regards to France and what the Hollande administration is likely to do in the future.

    I think the climax of this fall in gold and silver prices is likely to come when Greece is finally forced to exit the Euro. I think quantitative easing will resume when the Greece issue is finally resolved and the US 2012 elections are over with.

  2. Thanks for your kind words, CO. Your comments are always insightful.

    It will be interesting to see how things develop in France and Europe. According to today’s Financial Times, Germany is already moving towards agreeing to allow inflation to go higher. A looser monetary policy in the EU will certainly be bullish for precious metals, but as you note, Greece’s likely exit from the euro will push prices down.

  3. For anyone interested in learning more about what may happen to Greece and Europe, I recommend checking out Judy Dempsey’s Strategic Europe web site (, which has frequent short analyses on EU issues. Today she has a piece on allowing Greece to stay in the EU but leave the euro zone. Dempsey writes for the New York Times and is a former reporter for the Financial Times.

  4. This was a good read, better than most I’ve read lately on precious metals. The short term news out of Europe may give us some nice buying opportunities especially for those that are fundamentally bullish in the long run. I wonder how much is already baked into prices the chance of Greece leaving the EU.

  5. Good article! There was a report yesterday published by the Washington Post and concerning minutes from a Fed meeting held in April. In short, the Fed is leaving the door open for further support (stimulus) should the recovery worsen.



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