Euro Zone Moves Closer To Japanese Style Deflation

  • Posted Thursday, August 14, 2014 at 09:14 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - Gold and Silver prices rose modestly on Thursday, with Gold trading at $1,313.40 an ounce, and Silver trading at $19.90 an ounce, after U.S. jobless claims rose higher than expected last week while comments from Russian President Putin calmed investor fears that the Ukraine crisis could spiral out of control.

President Putin said Russia would stand up for itself, but not at the cost of confronting the world. But much of Putin’s conciliatory tone rests on the fact that sanctions by the West are beginning to take a toll on the Russian economy, and Putin is most likely under intense pressure to de-escalate the Ukrainian crisis.

Concerns that the Fed could raise interest rates sooner than expected, were put to rest on Wednesday, because while U.S. economic data may continue to support the notion of a firmer U.S. economy, it's "not firm enough to move up Fed tightening expectations,” say analysts at Brown Brothers Harriman.

Meanwhile, the economic recovery in the euro zone seems to have ground to a halt with gross domestic product (GDP) flat in the second quarter, compared with growth of a meager 0.2 per cent in the first quarter, according to Eurostat, the European Commission’s (ECs) statistics bureau, on Thursday. Inflation plunged to a four-and-a-half-year low of 0.4 percent in July, less than one-fourth of the ECB’s target of just below 2 percent. It is certainly possible that the euro zone may soon face crushing Japan-like deflation, without further accommodation.

With Germany struggling this quarter and France recording no growth, the fact that Italy entered its third recession since 2008 last week makes a euro zone recovery a longshot at best. It's one more reason that Gold has gained 9 percent this year, not just the political turmoil that is roiling Ukraine, Iraq and Israel, at the moment.

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