If There Was Any Doubt…

14-Sep (USAGOLD) — The yield on Greek 1-year money is trading in excess of 140% today; up dramatically from just a week ago when the 1-year yield was still below 100%. Clearly this is unsustainable and Greece is unquestionably on the verge of default, save for some massive infusion of funds that will negate Greece’s need to access global credit markets.

Nonetheless, EU leaders continue efforts to reassure the market. Today, French President Sarkozy echoed German chancellor Merkel in saying that France — like Germany — is prepared to do “everything possible to save Greece.” Yet the German constitutional court seems to have severely hamstrung at least Germany from participating in anything beyond what has already been approved. Without Germany, there will be no rescue for Greece and if Greece does indeed fail, the markets are rightfully concerned that haircuts on Greek debt will start toppling the dominoes.

Even US Treasury Secretary Geithner — who obviously has troubles of his own right here at home — took the time today to assure the world that there is “no chance” of European countries letting a major financial institution fall the way Lehman Brothers did three years ago this week. He went on to urge European leaders to act more forcefully to solve the continent’s escalating debt crisis. Glass houses Mr. Geithner…glass houses.

Today the Austrian parliament’s finance committee rejected a motion to fast-track a budget proposal to fund the country’s contribution to the expanded EFSF. Lawmakers in Austria apparently want more time to consider the implications. Time is not a luxury the EU can really afford; certainly not with respect to Greece.

China too seems to be retreating from recent pledges of support. President Wen Jiabao said today at the World Economic Forum in Dalian that “Countries should fulfill their responsibilities and put their own houses in order” before turning to China for further bailouts. The Greek house is about as “out of order” as a house can get, but they are most definitely not alone.

Not surprisingly, the latest news has intensified the pressure on European banking shares. Moody’s downgraded two of France’s largest banks, Societe Generale and Credit Agricole. The intensification of the liquidity crisis is evidenced by both the rise in Libor and the news that at least two banks tapped the ECB’s emergency dollar lending facility.

Despite the latest events, the euro remains underpinned, off its recent 7-month lows and gold remains consolidative within its recent range. The recent rise in the dollar, relative particularly to the euro, may be having a suppressive impact on the yellow metal; as perhaps has some deleveraging resulting from recent stock market losses. However, when push comes to shove, gold remains one of the last viable safe-haven assets remaining; and the trend remains unquestionably bullish.