In Greece, Gold prices are reportedly being traded at nearly 40% premium of current spot prices.
According to Coin Update News, (bold highlights mine)
``The fear running through the Greek populace is that the nation’s government may default on some of its debts."
``Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz). Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks.
``In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.
``The US government and some state governments such as California are in financial straits as bad as or even worse than Greece. How long will it take before American buyers will have to wait in lines to pay outrageous premiums for what are now bullion-priced gold and silver coins? More than one analyst thinks those days will come within a few months or sooner."
So how does "panic over default" translate to a stampede towards gold, considering that for the mainstream, these events are deemed as "deflationary"?
In a deflationary environment, gold isn't likely to be seen as 'safehaven' because gold isn't money in the sense similar to the function of paper money today, which have been imposed via legal tender laws, and subsequently used as the predominant medium of exchange by the consuming public worldwide.
Yet, one can't make an apples-to-apples comparison with the Great Depression era to highlight the case of gold's supposed refuge status under deflation. Then, gold was part of the medium of exchange known as the Gold standard. Today we have the paper money standard or the Fiat Money standard, where gold remains as reserve assets only for central banks.
In a deflationary environment, the real price of the currency or money's purchasing power increases or that the demand for cash relative to other assets is significantly greater. Hence, deflation and gold as an asset of sanctuary would seem inconsistent under the present fiat money conditions.
And Robert Blumen explains why the assumption that debt defaults leading to deflation isn't necessarily true,
``The only way that debt default is deflationary is if the debt that is defaulting was created out of nothing by a fractional reserve bank. The default of that sort of debt is deflationary. Because the price system is an integrated single market, all debt competes against all other debt, and all money supply changes affect all prices. So in a system like ours where some debt is created by banks as bank deposits, while other debut, such as bonds only transfers existing money, default of non-bank debt will eventually work its way through the price system and have some effect on bank debt." (emphasis added)
In other words, not all debts are created equal or derived from the fractional reserve banking, which is why it would be overly simplistic to account for deflation under concerns over debt default.
Moreover, following the monster Euro bailout by the Euro and the world, surging gold prices in Greece could likely exhibit symptoms of growing Monetary disorder, more than just inflation. Perhaps in the anticipation that a default may risk an expulsion from the Eurozone, which with the reintroduction of the drachma would extrapolate to massive inflation.
Another way to see this is that prices of Gold in Greece could be portentous of gold prices in all other currencies, as we see the same feedback mechanism applied by policymakers towards the global debt problem.
According to Coin Update News, (bold highlights mine)
``The fear running through the Greek populace is that the nation’s government may default on some of its debts."
``Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz). Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks.
``In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.
``The US government and some state governments such as California are in financial straits as bad as or even worse than Greece. How long will it take before American buyers will have to wait in lines to pay outrageous premiums for what are now bullion-priced gold and silver coins? More than one analyst thinks those days will come within a few months or sooner."
So how does "panic over default" translate to a stampede towards gold, considering that for the mainstream, these events are deemed as "deflationary"?
In a deflationary environment, gold isn't likely to be seen as 'safehaven' because gold isn't money in the sense similar to the function of paper money today, which have been imposed via legal tender laws, and subsequently used as the predominant medium of exchange by the consuming public worldwide.
Yet, one can't make an apples-to-apples comparison with the Great Depression era to highlight the case of gold's supposed refuge status under deflation. Then, gold was part of the medium of exchange known as the Gold standard. Today we have the paper money standard or the Fiat Money standard, where gold remains as reserve assets only for central banks.
In a deflationary environment, the real price of the currency or money's purchasing power increases or that the demand for cash relative to other assets is significantly greater. Hence, deflation and gold as an asset of sanctuary would seem inconsistent under the present fiat money conditions.
And Robert Blumen explains why the assumption that debt defaults leading to deflation isn't necessarily true,
``The only way that debt default is deflationary is if the debt that is defaulting was created out of nothing by a fractional reserve bank. The default of that sort of debt is deflationary. Because the price system is an integrated single market, all debt competes against all other debt, and all money supply changes affect all prices. So in a system like ours where some debt is created by banks as bank deposits, while other debut, such as bonds only transfers existing money, default of non-bank debt will eventually work its way through the price system and have some effect on bank debt." (emphasis added)
In other words, not all debts are created equal or derived from the fractional reserve banking, which is why it would be overly simplistic to account for deflation under concerns over debt default.
Moreover, following the monster Euro bailout by the Euro and the world, surging gold prices in Greece could likely exhibit symptoms of growing Monetary disorder, more than just inflation. Perhaps in the anticipation that a default may risk an expulsion from the Eurozone, which with the reintroduction of the drachma would extrapolate to massive inflation.
Another way to see this is that prices of Gold in Greece could be portentous of gold prices in all other currencies, as we see the same feedback mechanism applied by policymakers towards the global debt problem.
