When global currencies are under pressure, commodities usually rally in response. The start of 2010 signaled a major reversal for the US Dollar as the Europe Sovereign Debt Crisis unfolded. As concerns over Greece increased so did the fear of other Euro zone countries. The PIIGS, consisting of Portugal, Ireland, Italy, Greece, and Spain are all on the list of economic fragile countries that are in need of serious financial repair. Even though the Spanish government continues to deny the extent of their troubles (17% unemployment and 66% Debt to GDP), the market is preparing for the worst. This preparation has fueled a rally in commodities; most notably Gold. Investors are not only hedging based on Europe, they are preparing for the shift of attention on the US once the bailout measures are implemented. The Euro zone crisis will be ongoing, but the US will be evaluated next. In a previous post, I raised concerns about US and corporate debt that is due in 2012, which will call for high cash demands.
Earlier this week, Gold hit a five-month high of $1,183. Analysts project a long term rally towards $5K during the debt crisis.
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