Gold Bullion "the #1 Asset" for Eurozone Defaults - 13 July 2011

INVESTORS fearing potential Eurozone debt defaults would be wise to buy Gold Bullion, according to the conclusions of a report published this week by Oxford Economics, a leading economic forecasting consultancy.

Defaults by single currency members would trigger a deflation scenario, characterized by major bank losses, tighter credit conditions and further rounds of monetary stimulus – such as quantitative easing and low interest rates – Oxford Economics predicts in its report, commissioned by the World Gold Council.

On the report's analysis, Gold Bullion would be "the number one performing asset" over the next two years under such a scenario. Cash would also perform well due to falling shop prices, as would the bonds of more creditworthy issuers.

Riskier assets such as stocks and property would perform poorly, according to Oxford Economics' model.

The report comes in a week when Italy – the Eurozone's largest government bond issuer – has seen its bond prices fall significantly, while Ireland has had its sovereign debt downgraded to junk by ratings agency Moody's.

Renowned investor George Soros meantime said on Tuesday the default by Greece may now be "inevitable".

"State defaults in such advanced countries would be unprecedented in the post-war period and would strike a major blow to the perception of government bonds as a 'safe' asset class," says the Oxford Economics report.

"The solvency of sovereign states is no longer to be taken for granted," said Bank of Italy governor Mario Draghi on Thursday.

Draghi will take over from Jean-Claude Trichet as president of the European Central Bank in November. 

Investors have this week pushed the price of Gold Bullion to new record highs in Dollar, Euro and Sterling terms.

Oxford Economics also found that buying Gold Bullion boosted portfolio returns in their high inflation scenario.

The full Oxford Economic report is available to download from the World Gold Council.

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