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A Golden Solution to Europe’s Crisis

Written by Gary North on November 25, 2011

The talk in the mainstream media is moving to gold as a solution. This is the first time in my lifetime that this has happened.

I don’t think this is going to happen this year or next year. But the fact that high-level discussions by European decision-makers have turned to gold indicates a major paradigm shift has begun.

This article reminds us that European governments own over $650 billion in gold. This is a drop in the bucket compared to the potential shortfall of $30 trillion in bad debts. But it would be a start.

 With no end to the eurozone debt crisis in sight, there has also been no end to the stream of possible solutions. The latest involves using gold as collateral.

With eurozone central banks holding some 64% of the world’s gold reserves, they’d have the heft to back that up. . . .

“Historically it’s not unusual for a country to use gold as collateral,” said Jeffrey Nichols, managing director of American Precious Metals Advisors in New York.

The idea of using gold as collateral was rumored to be part of a broader proposal unveiled by the European Commission Wednesday. Although that plan did not specifically discuss the notion of gold as collateral, experts said it’s still a plausible scenario.

This is no longer a fringe-group solution. This is a serious discussion.

Eurozone central banks hold roughly 10,792 metric tonnes of gold. At today’s prices, that would give the stash a price tag of nearly $650 billion.

While that’s not enough to solve all of Europe’s problems, it could offer a step in the right direction, especially if it piques the interest of, say China — a country that has been lukewarm at best about how involved it wants (or doesn’t want) to be.

Nichols said that “given China’s thirst for gold,” it could very well become interested in offering some type of financial assistance to eurozone countries in distress.

What would this do to the price of gold? The answer may surprise you.

Read the complete article.

Continue Reading on money.cnn.com

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