Stagflation manifesting itself in UK and Euro zone – the effect on dollar, bond, gold and stocks
Special Correspondent
Jan. 11, 2007

The stagflation is now clear in Euro zone and UK. While the economy is expressing its upward trend, the inflation is rising much faster. The inflation in UK is high. Euro zone is also catching up. The inflation that you see is the last stage of stagflation – it always spikes in asset classes and somewhat elsewhere before deflation takes over.

The Bank of England surprised markets by raising interest rates a quarter-point to 5.25%. The ECB held its key interest rate steady at 3.5%, but evidence of solid growth in the euro zone will likely spur further rate increases.

The confirmation of stagflation will be sharp rally in gold and then a total collapse as deflation takes over. During deflation, the currencies hold their values, gold and other asset classes do not.

The effect on dollar or other currencies are positive. However, dollar index can rally sharply this year. Gold and commodities especially oil and metals will suffer. The worst effect will be on real estate and stock markets.

Stagflation manifesting itself in UK and Euro zone – the effect on dollar, bond, gold and stocks
Special Correspondent
The effect on dollar or other currencies are positive. However, dollar index can rally sharply this year. Gold and commodities especially oil and metals will suffer. The worst effect will be on real estate and stock markets.
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